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construction-sector.md194 lines8.4 KB
v1GLOBAL
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| 1 | --- |
| 2 | name: construction-sector |
| 3 | description: > |
| 4 | Use this skill whenever a construction contractor, subcontractor, developer, or design-build firm asks about sector-specific tax / accounting. Trigger on phrases like "construction industry scheme", "CIS", "CIS deduction", "reverse charge construction VAT", "domestic reverse charge construction services", "developer's relief", "long-term contract", "percentage of completion", "completed contract", "ASC 606 construction", "uninstalled materials", "retention", "subcontractor 1099", "USDOL prevailing wage", "Davis-Bacon", "construction VAT zero-rate new residential", or any construction-sector tax question. Covers UK Construction Industry Scheme (CIS), UK domestic reverse charge VAT for construction services (effective 1 March 2021), US construction tax (long-term contracts under IRC §460; percentage-of-completion-capitalisable; small contractor exception), EU developer reliefs and new-build zero/reduced VAT rates, retentions and progress billing accounting. Does NOT cover: construction safety regulation, building permit procedures, or technical engineering standards. |
| 5 | version: 0.1 |
| 6 | jurisdiction: GLOBAL |
| 7 | category: vertical |
| 8 | depends_on: |
| 9 | - corporate-income-tax-workflow-base |
| 10 | verified_by: pending |
| 11 | --- |
| 12 | |
| 13 | # Construction Sector Tax & Accounting v0.1 |
| 14 | |
| 15 | ## What this file is |
| 16 | |
| 17 | A sector overlay for construction contractors, subcontractors, developers, and design-build firms. |
| 18 | |
| 19 | --- |
| 20 | |
| 21 | ## Section 1 — Revenue recognition for long-term contracts |
| 22 | |
| 23 | ### 1.1 IFRS 15 / ASC 606 |
| 24 | |
| 25 | **[T1] Performance obligation satisfied over time** if any of: |
| 26 | - Customer simultaneously receives and consumes the benefits (typically for routine services) |
| 27 | - Work creates or enhances an asset the customer controls |
| 28 | - No alternative use to seller + enforceable right to payment for work performed to date |
| 29 | |
| 30 | **[T1] Input method** (proportion of costs incurred to total expected costs) — most common for construction. |
| 31 | **Output method** (units produced / milestones / surveys) — used where measurable units. |
| 32 | |
| 33 | **[T1] Uninstalled materials** — exclude from cost-to-cost calculation to avoid overstating progress (IFRS 15 IE19 example). |
| 34 | |
| 35 | ### 1.2 US tax — long-term contracts (IRC §460) |
| 36 | |
| 37 | **[T1]** A "long-term contract" is one not completed within the tax year started. |
| 38 | |
| 39 | **[T1] Percentage of Completion Method (PCM)** — required for most contracts; based on cost-to-cost. |
| 40 | |
| 41 | **[T1] Small Contractor Exception** — exempt from PCM if: |
| 42 | - Average annual gross receipts ≤ USD 30m (2025; indexed) |
| 43 | - Contract estimated to complete within 2 years |
| 44 | |
| 45 | Small contractor may use Completed Contract Method (CCM) or Cash method for short-duration contracts. |
| 46 | |
| 47 | **[T1] Home Construction Contract Exception** — residential construction not required to use PCM. |
| 48 | |
| 49 | ### 1.3 Look-back interest (US) |
| 50 | |
| 51 | **[T1] §460(b)(2)**: at completion of long-term contract, recompute PCM based on actual rather than estimated costs; if difference creates over- or under-payment, interest computed. |
| 52 | |
| 53 | --- |
| 54 | |
| 55 | ## Section 2 — UK Construction Industry Scheme (CIS) |
| 56 | |
| 57 | **[T1]** A withholding regime for payments by contractors to subcontractors in construction operations. |
| 58 | |
| 59 | ### 2.1 Contractor obligations |
| 60 | |
| 61 | - Verify subcontractor with HMRC |
| 62 | - Withhold and remit to HMRC based on subcontractor status: |
| 63 | - **Gross payment status** — 0% deduction |
| 64 | - **Registered subcontractor** — 20% deduction |
| 65 | - **Unregistered subcontractor** — 30% deduction |
| 66 | - Monthly CIS return (CIS300) by 19th of month |
| 67 | - Payment of CIS deducted by 22nd (electronic) / 19th (cheque) |
| 68 | |
| 69 | ### 2.2 Subcontractor |
| 70 | |
| 71 | - Register as contractor (if employs other subbies) |
| 72 | - Apply for gross payment status if turnover ≥ GBP 30k per individual / GBP 30k per partner / GBP 200k per company |
| 73 | - Recover CIS deductions against own tax liability |
| 74 | |
| 75 | ### 2.3 Scope |
| 76 | |
| 77 | **[T1]** "Construction operations" include site preparation, demolition, installation, building, painting/decorating, alteration. Excludes architecture, engineering, surveying. |
| 78 | |
| 79 | **[T1] Mixed contracts** — full CIS applies unless the construction element is incidental and minor. |
| 80 | |
| 81 | --- |
| 82 | |
| 83 | ## Section 3 — UK Domestic Reverse Charge for Construction VAT |
| 84 | |
| 85 | **[T1] Effective 1 March 2021** — domestic reverse charge applies to most construction services in the UK construction supply chain (subject to certain exceptions for end-user / intermediary supplier). |
| 86 | |
| 87 | ### 3.1 Mechanics |
| 88 | |
| 89 | - Supplier issues invoice **without VAT** (notation: "reverse charge applies; customer pays VAT directly") |
| 90 | - Customer accounts for output VAT on their return AND recovers as input VAT (subject to standard rules) |
| 91 | - Net cash effect: nil for customer |
| 92 | - Disadvantages: smaller supplier cash flow worsens (no VAT on receipts) |
| 93 | |
| 94 | ### 3.2 Scope |
| 95 | |
| 96 | **[T1]** Same as CIS for "construction services" between VAT-registered parties — supplier must charge reverse charge to other contractors. Excludes: |
| 97 | - Supplies to "end-users" (the final customer in the chain — typically the developer or building owner) |
| 98 | - Supplies to "intermediary suppliers" (those who acquire and on-supply construction services to end-users) |
| 99 | |
| 100 | ### 3.3 End-user / intermediary supplier notification |
| 101 | |
| 102 | End-user / intermediary must notify supplier in writing; failure to notify means supplier should charge VAT normally. |
| 103 | |
| 104 | --- |
| 105 | |
| 106 | ## Section 4 — Construction VAT |
| 107 | |
| 108 | ### 4.1 New-build residential |
| 109 | |
| 110 | **[T1]** |
| 111 | - **UK**: Zero-rated (Item 2(a) Group 5 Schedule 8 VATA) |
| 112 | - **France**: Reduced rate 5.5% for social housing (HLM); 10% for certain renovations |
| 113 | - **Germany**: Standard 19% on most; some construction services in residential sector exempt |
| 114 | - **Italy**: 4% on first-home purchase; 10% on non-first-home new build |
| 115 | - **Spain**: Reduced 10% on new residential |
| 116 | |
| 117 | ### 4.2 Renovation |
| 118 | |
| 119 | **[T1]** |
| 120 | - **UK**: Reduced rate 5% for certain residential renovation (over-2-years empty; energy-saving materials) |
| 121 | - **EU**: Reduced rates per Annex III PVD allowed |
| 122 | |
| 123 | ### 4.3 Land |
| 124 | |
| 125 | **[T1]** Most jurisdictions exempt sale of unimproved land. UK option to tax permitted for commercial land. |
| 126 | |
| 127 | --- |
| 128 | |
| 129 | ## Section 5 — Retention and progress billing |
| 130 | |
| 131 | ### 5.1 Retention |
| 132 | |
| 133 | **[T1]** Construction contracts typically retain 5-10% of each progress payment for defects liability period. Accounting: |
| 134 | - Contract asset (under IFRS 15 / ASC 606) for amount earned but not billed |
| 135 | - Retention receivable recognised when retention released |
| 136 | - Bad debt provision for retention if collection uncertain |
| 137 | |
| 138 | ### 5.2 Progress billing |
| 139 | |
| 140 | **[T1]** |
| 141 | - Issue progress invoice based on completion |
| 142 | - Recognise revenue on % completion (not invoice timing) |
| 143 | - Variance between billed amount and earned revenue → contract asset (earned > billed) or contract liability (billed > earned) |
| 144 | |
| 145 | --- |
| 146 | |
| 147 | ## Section 6 — Subcontractor classification |
| 148 | |
| 149 | **[T1] Employment vs self-employed status** — material in construction: |
| 150 | - US: §530 relief; misclassification penalties; specific Department of Labor (Davis-Bacon) prevailing wage requirements on federal contracts |
| 151 | - UK: IR35 test for personal service companies; off-payroll worker rules |
| 152 | - Many jurisdictions: "deemed employment" tests for construction subcontractors |
| 153 | |
| 154 | --- |
| 155 | |
| 156 | ## Section 7 — Reviewer brief |
| 157 | |
| 158 | ``` |
| 159 | 1. Contract register — every active project |
| 160 | 2. Revenue recognition — PCM input method calculation per contract |
| 161 | 3. Uninstalled materials exclusion documented |
| 162 | 4. CIS register (UK) — subcontractor list with status, deductions, monthly returns |
| 163 | 5. Domestic reverse charge VAT (UK) — supply chain map, end-user notifications |
| 164 | 6. New-build VAT zero/reduced rate claim support |
| 165 | 7. Contract assets / liabilities reconciliation |
| 166 | 8. Retention schedule by project / customer |
| 167 | 9. Long-term contract look-back interest (US) |
| 168 | 10. Subcontractor employment status assessments |
| 169 | 11. Reviewer questions — [T2]/[T3] items |
| 170 | ``` |
| 171 | |
| 172 | --- |
| 173 | |
| 174 | ## Section 8 — Self-checks |
| 175 | |
| 176 | - [ ] Long-term contracts on PCM input cost-to-cost |
| 177 | - [ ] Uninstalled materials excluded from cost-to-cost |
| 178 | - [ ] Small contractor exception applied where eligible (US) |
| 179 | - [ ] CIS subcontractor verification current (UK) |
| 180 | - [ ] CIS return CIS300 filed monthly |
| 181 | - [ ] Domestic reverse charge applied where required (UK) |
| 182 | - [ ] End-user notification documented (UK) |
| 183 | - [ ] New-build zero/reduced rate VAT supported with HMRC notice/EU PVD reference |
| 184 | - [ ] Retention receivable recognised when contractually due |
| 185 | - [ ] Look-back interest computed at contract completion (US) |
| 186 | - [ ] Subcontractor employment status documented (IR35 / §530 / Davis-Bacon) |
| 187 | - [ ] Output flags every [T2]/[T3] item for reviewer judgement |
| 188 | |
| 189 | --- |
| 190 | |
| 191 | ## Section 9 — Disclaimer |
| 192 | |
| 193 | Construction sector taxation is highly fact-specific. Outputs must be reviewed by credentialed construction sector practitioners. The most up-to-date version is at [openaccountants.com](https://openaccountants.com). |
| 194 |
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About
Use this skill whenever a construction contractor, subcontractor, developer, or design-build firm asks about sector-specific tax / accounting. Trigger on phrases like "construction industry scheme", "CIS", "CIS deduction", "reverse charge construction VAT", "domestic reverse charge construction services", "developer's relief", "long-term contract", "percentage of completion", "completed contract", "ASC 606 construction", "uninstalled materials", "retention", "subcontractor 1099", "USDOL prevailing wage", "Davis-Bacon", "construction VAT zero-rate new residential", or any construction-sector tax question. Covers UK Construction Industry Scheme (CIS), UK domestic reverse charge VAT for construction services (effective 1 March 2021), US construction tax (long-term contracts under IRC §460; percentage-of-completion-capitalisable; small contractor exception), EU developer reliefs and new-build zero/reduced VAT rates, retentions and progress billing accounting. Does NOT cover: construction safety regulation, building permit procedures, or technical engineering standards.
GLOBALty-2025
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