PAYROLL FORBUILDING FIRMSUK.
A construction firm running PAYE has the same RTI obligations as any other employer — Full Payment Submission (FPS) every time you pay employees, Employer Payment Summary (EPS) monthly, plus auto-enrolment pension contributions, P11D for benefits, and statutory absence pay. What's different is the CIS interaction (CIS suffered offsets against PAYE through the EPS) and the contractor/employee distinction (subcontractors aren't on payroll, employees are — and HMRC scrutinises the line). We match you with construction accountants who run the payroll cleanly and don't conflate the two sides.
WHAT CONSTRUCTION PAYROLL ACTUALLY COVERS
RTI — Real Time Information — is the system every employer reports payroll through. Full Payment Submission goes in on or before the day employees are paid, telling HMRC the gross pay, tax, NI, student loan deductions, and net pay for each employee. Employer Payment Summary is monthly (or where there's no FPS in a given month, an EPS still goes in), reporting the amounts to be paid to HMRC including PAYE/NIC, the recovery of statutory payments (SSP, SMP, SPP, ShPP, SAP), and — for construction — the CIS suffered offset. Late FPS triggers automatic penalty notices that escalate fast; HMRC has interim relaxations for small employers but the formal penalty regime is fully enforced for repeat lateness.
CIS suffered offset is the specifically construction part of the payroll cycle. Every month, your company's CIS deductions taken by other contractors (the 20% they withheld from your invoices) can be claimed against the PAYE/NIC owed for that month via the EPS. So if you owe £4,000 PAYE/NIC and have £6,500 CIS suffered, you pay nothing that month and £2,500 carries forward. Generalist accountants who don't do construction routinely miss this step entirely; we see firms with five-figure CIS suffered balances sitting unclaimed because PAYE was paid in cash month after month.
Auto-enrolment pension is mandatory for every employer with eligible jobholders (UK workers aged 22 to State Pension age earning above £10,000 a year). Minimum contribution is currently 8% of qualifying earnings — 3% from the employer, 5% from the employee. Construction firms with mixed PAYE-and-CIS workforces have to assess each individual: employees get auto-enrolled; CIS subcontractors don't (they're not workers under the relevant legislation, since they're self-employed). Triennial re-enrolment kicks in at the three-year point and is a separate filing the firm has to remember.
Holiday pay calculation in construction is more nuanced than the standard 28 days. Workers paid an irregular wage (variable hours, irregular shifts, like many trades) accrue holiday based on the average earnings over the previous 52 paid weeks (the reference period was 12 weeks pre-2020 and remains 52 weeks now). Statutory minimum is 5.6 weeks per year including bank holidays. Construction firms that pay rolled-up holiday pay (a percentage uplift on each pay packet rather than paid leave) need that arrangement to be transparent and itemised on payslips — courts have consistently held that opaque rolled-up arrangements don't discharge the holiday obligation.
Statutory absence pay covers SSP (sick pay), SMP/SPP/SAP (maternity, paternity, adoption), and ShPP (shared parental). SSP is £116.75/week (2024/25) for up to 28 weeks; small employers can't recover SSP from HMRC but larger statutory payments (SMP etc.) are recoverable through the EPS at 92% (or 103% for small employers under the Small Employers' Relief threshold). Construction firms with high turnover of site labour need clean SSP records — site injuries and short-term absences are common and if you're not recording the dates properly the back-and-forth with HMRC on year-end gets expensive.
CONSTRUCTION PAYROLL PITFALLS
The contractor/employee line is the biggest single risk. CIS subcontractors are self-employed; PAYE employees are employees. Same person on the same site doing the same work can't legitimately be one for some purposes and the other for others. HMRC's tests look at substitution rights, control, mutuality of obligation, equipment provision, and risk-of-loss. Get it wrong and HMRC reclassifies — backdating PAYE/NIC across the affected period plus interest plus penalties. We see this most where firms hire site labourers 'on CIS' for cost reasons but treat them with employee characteristics (fixed hours, no substitution, firm's tools).
P11D benefits in kind are reportable annually for any benefit not put through payroll: company van for personal use, fuel benefit, private medical, gym memberships, accommodation. Construction directors who take the company van home for personal use almost always have a benefit in kind (HMRC's test: is the van available for unrestricted personal use? Yes if you can use it on the weekend.). Reportable on P11D, taxed on the director and Class 1A NIC payable by the employer. Run-of-the-mill construction firms miss this because the previous accountant didn't flag it; HMRC pick it up on van mileage during compliance checks.
Apprenticeships and CITB grant claims interact with payroll in ways that catch employers out. CITB levy is 0.35% of total PAYE earnings for construction firms above the levy threshold (£135k of PAYE in the relevant period). Apprentice grants flow back through the CITB, not through HMRC, but the apprentice has to be on payroll and properly recorded for the funding to be claimable. Construction firms hiring apprentices through training providers sometimes leave the funding on the table because the payroll setup doesn't correctly identify the apprenticeship.
Holiday pay shortfalls are now a systemic risk after the 2017-2019 case law (Bear Scotland, Lock v British Gas, etc.). Construction firms paying overtime, allowances, or commission as part of normal earnings have to include that variable element in holiday pay calculation — flat-rate holiday pay calculated on basic only is the route to back-pay claims. Most firms haven't restructured payroll to capture this and are quietly under-paying holiday — exposure is up to two years of back-pay per worker plus future weekly compliance.
Off-payroll working (IR35) applies to limited-company subcontractors providing personal services through their company. For construction services where CIS already applies, the priority order is CIS first — but if a subcontractor's relationship has employee characteristics and CIS has been applied for cosmetic reasons, the off-payroll regime can override and the engaging contractor has to operate PAYE on the deemed payment. The 2021 reforms put the determination on the engager for medium and large clients; small clients (defined by Companies Act size criteria) still leave the determination with the subcontractor. Construction firms growing through the small-company threshold need to start making determinations they previously didn't have to.
HOW CONSTRUCTION PAYROLL PLAYS OUT
Building firm with 12 PAYE employees (site labourers, foreman, office) and a rotating roster of 18-25 CIS subcontractors per month. Monthly PAYE/NIC liability ~£8,500. Monthly CIS suffered ~£11,200. We restructured the EPS so CIS suffered cleared PAYE every month with ~£2,700 carried forward to the next month. After 6 months a £15,000 cash-flow benefit had freed up vs the previous "pay PAYE in cash and reclaim CIS at year-end" approach. Auto-enrolment audited and re-enrolled three workers who'd been missed.
Refurbishment Ltd with 8 PAYE site team paid basic plus weekly overtime (typically 8-12 hours). Holiday pay had been paid on basic only, which post-Bear-Scotland is non-compliant. Reviewed two years of paid overtime, calculated under-paid holiday across 8 workers (~£11,400 total), reissued holiday adjustment payslips, and restructured the payroll to include rolling overtime in holiday calculation going forward. Risk closed; future weekly compliance built in.
Limited company plumber, single director, took company van home each evening and used it occasionally for personal trips. No P11D had been filed in three years. HMRC opened a routine compliance check, identified the unrestricted private use, and proposed to assess the van benefit (£3,960/year for the relevant years) plus fuel benefit (£757/year for a small van). We restructured to a "no private use" policy with a written undertaking and mileage log, contested the personal-use position back to year one, and settled at one year of benefit instead of three. Net assessment: ~£1,400 vs ~£8,200 originally proposed.
CITIES WE COVER
Construction payroll setup varies by city because the size of the workforce and the PAYE/CIS mix shifts:
Payroll for BuildingFirms: Common Questions
Yes — HMRC's Basic PAYE Tools is free, and several commercial payroll packages (BrightPay, Xero Payroll, Sage) are within reach. The risk in construction is the CIS interaction (EPS offsetting), the auto-enrolment compliance (worker assessment, contributions, re-enrolment), the P11D benefit-in-kind treatment, and the holiday pay calculation post-Bear-Scotland. Software handles the mechanics; it doesn't flag what you should be doing.
Each month's EPS reports the company's CIS suffered (the deductions other contractors took from your payments) alongside the PAYE/NIC due for the month. CIS suffered reduces the cash payment to HMRC on a pound-for-pound basis. If CIS suffered exceeds PAYE/NIC, the excess carries forward; at tax year-end, any residual can be offset against corporation tax via the CT600 or claimed as a refund. Generalist payroll setups skip the EPS step and pay PAYE in full each month, leaving the CIS suffered to recover at year-end only — slow and cash-flow-bad.
No. CIS subcontractors are self-employed and paid via the CIS300 monthly return, not through payroll. They don't accrue holiday pay, aren't auto-enrolled into the pension, don't go on the FPS, and don't have PAYE/NIC deducted. The risk is misclassification — site labourers paid 'on CIS' but treated like employees (fixed hours, supervised work, firm's tools, no substitution right) can be reclassified by HMRC, with backdated PAYE/NIC and penalties.
FPS goes in on or before the day employees are paid — same day or earlier. EPS goes in monthly by the 19th of the following tax month (the same deadline as the CIS300, conveniently). Late FPS triggers automatic penalty notices; small employers had a grace period that's now ended, and the regime is fully enforced. EPS late doesn't directly trigger an HMRC penalty but does block the CIS suffered offset and the statutory recovery, which costs cash.
Every employer assesses each worker each pay period: UK-based, aged 22 to State Pension age, earning above £10,000/year (£833/month or £192/week) — auto-enrol them. Minimum contribution: 3% employer, 5% employee, on qualifying earnings (£6,240-£50,270 for 2024/25). The pension scheme has to be a qualifying scheme, registered with The Pensions Regulator. Triennial re-enrolment three years after the initial staging, again at year 6, year 9, etc. Construction firms with high site turnover have to assess every new starter every pay period.
If a director or employee uses the van for unrestricted personal use, yes. The van benefit-in-kind is £3,960 (2024/25) plus a fuel benefit if the firm pays for personal-use fuel. 'Restricted use' means commuting only and incidental private trips — formally documented with a no-private-use policy and a mileage log. Construction directors taking the van home each evening need the policy and log in place; without them, HMRC presumes unrestricted use. P11D is filed annually by 6 July following the tax year.
Statutory minimum is 5.6 weeks per year including bank holidays. For workers with irregular hours or earnings, holiday pay is calculated on the average earnings over the previous 52 paid weeks (zero-pay weeks ignored, capped at going back 104 weeks). Earnings include overtime, allowances, and commission paid as part of normal pay — flat-rate basic-only holiday pay is non-compliant post-Bear-Scotland. Rolled-up holiday pay (a percentage uplift on each pay packet) is technically permissible only if it's transparent and itemised; otherwise courts hold it doesn't discharge the holiday obligation.
Usual scope: 12-24 months of payroll records. Common findings on construction firms: misclassified subcontractors (CIS people who should have been on PAYE), missing P11Ds for company vans, holiday pay shortfalls on overtime, missed auto-enrolment, and CIS suffered offsetting that wasn't properly applied through the EPS. Each finding is an assessment; the cluster effect on a 24-month review can be significant. Tight payroll and proper EPS filings shut most checks down at the first letter.