Accounting software for builders: handling CIS, reverse charge VAT and job costs

Accounting software for builders should handle the Construction Industry Scheme (CIS), apply domestic reverse charge VAT correctly and let you see what each job is actually making. Xero, QuickBooks, Sage and FreeAgent all support CIS, and the best fit for you depends mainly on whether you work as a contractor, a subcontractor or both, and how much of your admin happens on site rather than in the office. This guide covers what builders need from accounting software that general packages treat as optional, how the main providers compare on CIS and the reverse charge, how to track profit and retention job by job, and how keeping clean records helps when you need funding for your next job.

What should accounting software for builders do that general software doesn't?

Sending invoices and connecting to your bank feed are the basics. Building work adds a layer of tax rules and job tracking on top of that, so the features worth checking before you sign up are slightly different:

• It should calculate CIS deductions automatically, applying the right rate to the labour element of each invoice and leaving materials out.

• It should let contractors verify subcontractors with HMRC and file the monthly CIS return directly.

• It should let subcontractors record the CIS deducted from their payments, so it can be reclaimed rather than lost.

• It should apply domestic reverse charge VAT on the right invoices and make it clear on each one that the reverse charge applies.

• It should track income and costs against individual jobs, so you can see which projects are profitable before the year end accounts tell you.

• It should work properly on a phone, so receipts for materials and fuel get captured on site rather than lost in the van.

If a package can't do the first four on the plan you're paying for, you'll end up doing that work by hand in a spreadsheet.

How does accounting software handle CIS deductions?

Accounting software handles CIS by applying the correct deduction rate to the labour part of each payment, keeping a running record of what has been deducted, and producing the monthly return contractors send to HMRC. How much of that you need depends on which side of the scheme you sit.

If you're a contractor paying subcontractors, you're responsible for making the deduction, not the subcontractor. Your software needs to verify each subcontractor's status with HMRC, deduct at the right rate and send your monthly return to HMRC by the 19th of each month, following the end of the tax month. VAT, materials the subcontractor paid for and plant hired for the job are taken off before the deduction is worked out, so the software needs to split those elements out on each payment.

If you're a subcontractor, the deduction is made before the money reaches you. Your software needs to record the gross amount you invoiced, the CIS taken off and the net amount received, so the deducted tax can be reclaimed. Limited companies reclaim it through their payroll scheme, reporting CIS deductions on their Employer Payment Summary so HMRC can take them off what the company owes, while sole traders record them on their Self Assessment tax return.

If you work as both, taking subcontracts from a main contractor while paying your own subcontractors, check the software supports contractor and subcontractor CIS together on the same account, rather than treating them as separate setups.

How does software deal with domestic reverse charge VAT?

Domestic reverse charge VAT means your customer accounts for the VAT on their own VAT return, rather than you charging it and paying it to HMRC. Good accounting software applies this automatically on the right invoices, so you don't need to work it out line by line. The reverse charge has applied since 1 March 2021. You must use it when you supply building and construction services to a VAT registered customer, the payment is reported within CIS, and the services are standard or reduced rated. It covers work such as constructing, altering, repairing, extending and demolishing buildings, painting and decorating, and installing heating, lighting or air conditioning. It doesn't apply if your customer has given you written confirmation that they're an end user or an intermediary supplier. An end user is a VAT and CIS registered business that doesn't supply the construction services on to anyone else.

When it does apply, your invoice needs to make clear that the reverse charge applies and that the customer must account for the VAT. It should show how much VAT is due under the reverse charge, without including it in the amount you charge. HMRC suggests wording such as "Customer to pay the VAT to HMRC". Software with built in reverse charge VAT codes adds this for you, so you're not editing each invoice by hand.

The reverse charge also affects your cash flow as a subcontractor, because the VAT on these invoices isn't included in what your customer pays you. Seeing this clearly in your software makes it easier to plan wages and materials around it.

Which accounting software supports CIS and the reverse charge?

Xero, QuickBooks, Sage and FreeAgent all support CIS, though they differ in how contractor returns are handled and what's included in the plan.

Plans and add ons can change, so check the provider's current CIS page before you subscribe, particularly if you're a contractor who wants to file returns directly from the software.

How can accounting software help you track job profit and retentions?

Accounting software helps you track job profit by tagging every invoice, bill and receipt to the job it belongs to, so you can compare what you quoted against what the work actually cost. Without this, a job that overran on labour or materials only shows up as a lower profit figure months later, when it's too late to adjust your pricing. It's worth setting up a few habits from the start of every job:

• Create a separate project or tracking category for each job, so materials, labour and subcontractor costs are assigned as they come in.

• Record each application for payment or valuation against the job, so you can see how much has been certified and how much is still outstanding.

• Record retention as a separate balance owed to you, with the date it's due for release, rather than leaving it hidden inside the main invoice.

• Review profit by job every month, not just when the job closes, so you can spot overruns while there's still time to deal with them.

Tracking retention clearly matters because it's money you've already earned but haven't yet been paid. Our guide to business credit scores for construction businesses covers the risk of losing retention when a business above you in the supply chain runs into trouble, and how to check that risk before you start work.

How do you choose the right accounting software for your building business?

The right software comes down to how your business is set up and how you work day to day. These are the questions worth answering before you commit:

• Contractors need subcontractor verification and monthly return filing, while subcontractors mainly need deductions recorded so they can be reclaimed, and anyone working as both needs the two together.

• If you're VAT registered, you need software that's compatible with Making Tax Digital for VAT, and if you supply reverse charge work, it should have reverse charge VAT codes built in.

• If you're a sole trader registered for Self Assessment, you need to use Making Tax Digital for Income Tax from 6 April 2026 if your qualifying income was over £50,000 in the 2024 to 2025 tax year, or from 6 April 2027 if it's over £30,000 in the 2025 to 2026 tax year, so your software needs to be compatible.

• If receipts, timesheets and photos are captured from a phone on site, test the mobile app properly during the free trial.

• Ask your accountant which package they use, since sharing the same software makes year end and CIS queries quicker to deal with.

For a broader look at pricing and features across providers, beyond what matters to builders, our guide to the best accounting software for small businesses compares six options side by side.

How can good accounting records help you fund your next job?

Up to date accounting records make it quicker and easier to get funding for your next job, because lenders can see your income, costs and payment history without waiting for you to pull it together. Software that produces management accounts and reports in a few clicks means you can send a lender what they ask for without delay.

You might need funding to buy or replace plant and vans, cover wages and materials before a valuation is paid, or take on a bigger project than your cash allows. Invoice finance lets you release cash against invoices you've already raised, which suits a business waiting on a main contractor to pay a valuation. Asset finance lets you spread the cost of plant, machinery and vehicles over an agreed term, rather than paying the full cost upfront. For building, renovating or expanding business premises, a construction loan covers the cost of the project itself. Whichever route fits, our panel of 130+ lenders means you can compare options in one place, and a clear cash flow forecast built from your accounting data shows lenders how the money will be repaid.

Check your main contractors before you start the next job

Your accounting software already shows who owes you money. Connecting it to Capitalise shows you whether they're likely to pay. Credit Risk Manager syncs with Xero, QuickBooks and Sage, pulling through your customers and outstanding invoices so you can see each main contractor's or client's credit score, risk band and suggested credit limit next to what they owe you. You'll get an alert the moment their credit profile changes, whether that's a new County Court Judgment, a declining score or a shift in payment performance. That means you can check a main contractor before you accept a subcontract, and keep watching them while your valuations and retention are outstanding. Sign up to Capitalise today and monitor your main contractors.