Accounting for construction and contracting companies is different from ordinary trading accounting. A project may continue for months or years and may include advance payments, progress claims, stage payments, retention, variation orders, subcontractors, materials, equipment, and labour costs linked to the project.
The issue is not only recording income and expenses. The company needs to know the profit or loss of each project, when invoices should be issued, when VAT becomes due, what the direct and indirect costs are, and whether there are unpaid claims or delayed collections.
Al Basma helps construction and contracting companies organize project accounts, progress claims, costs, subcontractors, VAT, Corporate Tax, and financial reports for management, partners, and auditors.
Construction companies usually deal with long-term contracts, project stages, progress claims, advance payments, retention, direct costs, and indirect costs. For this reason, the real profit may not appear clearly from bank statements or invoices only.
A project may appear profitable at first, but once labour, materials, subcontractors, equipment, and shared expenses are allocated correctly, the margin may change. A company may also have good cash collections while still owing large amounts to suppliers or subcontractors.
Each project should therefore have a separate accounting file showing the contract, progress claims, invoices, collections, costs, retention, variation orders, and financial result of the project.
We open a separate file for each project, including the contract, client, contract value, project period, payments, progress claims, and costs.
We link approved progress claims with tax invoices, payment due dates, collections, and the correct tax period.
We review advance payments, stage payments, collections, overdue amounts, and retention withheld by the client.
We link material purchases and supplier invoices to the correct project and review invoices, input VAT, and inventory where applicable.
We review subcontractor contracts, invoices, progress claims, payments, and retentions and link them to the relevant project stages.
We prepare reports showing income, costs, profit margin, amounts due, and collections for each project.
In accounting practice, construction companies always track the difference between amounts due and amounts received. However, for VAT purposes, the company does not simply choose freely between a cash basis and an accrual basis.
In construction contracts, especially contracts involving stage payments or consecutive invoices, the date of supply should be determined based on the events that trigger VAT. This may be the date a tax invoice is issued, the date payment is due as shown on the tax invoice, or the date payment is received, whichever occurs first.
Therefore, the contract, progress claim, invoice, due date, and collection should be reviewed together. If a tax invoice is issued or payment becomes due, VAT may arise even if the amount has not yet been collected. If an advance payment is received, it may create a VAT effect before the final progress claim is issued.
A progress claim is an important document in construction accounting, but it should be connected to the tax invoice, payment due date, and actual collection. There should be a clear sequence between work performed, consultant or client approval, progress claim issuance, tax invoice issuance, and collection.
In some cases, a progress claim may be approved but no invoice has been issued yet. In other cases, an invoice may have been issued but payment is delayed, or an advance payment may have been collected before the work is completed. Each case needs correct accounting and VAT treatment.
Many construction contracts allow the client to withhold a percentage of the progress claim as retention for performance, defects, or maintenance obligations. These amounts should be separated in the accounts so they do not get mixed with collected revenue or normal receivables.
The company should know the retention amount, due date, release conditions, whether an invoice has been issued, and whether the amount has been collected. This affects accounts, cash flow, and potentially VAT treatment depending on the documents and contractual terms.
A clear retention schedule helps management follow up amounts that should be claimed after project completion or the maintenance period and prevents important amounts from being lost.
Project cost is not limited to materials. Each project should be charged with its correct share of materials, labour, subcontractors, equipment, transport, rentals, services, direct costs, and shared costs where they relate to the project.
If project costs are not allocated correctly, the company may show unrealistic profits and later discover that the project was actually loss-making despite large collections.
Subcontractors are one of the most important areas in construction accounting. Each subcontractor should be linked to the project, stage, contract value, invoices, payments, and retention related to that subcontract.
Supplier and subcontractor invoices should also be reviewed for VAT, and the company should retain valid tax invoices and documents supporting input VAT claims. For input VAT recovery, the business should hold documents showing VAT paid, such as a valid tax invoice, and the goods or services should be used or intended to be used for making taxable supplies. :contentReference[oaicite:1]{index=1}
Recording payments to subcontractors from the bank is not enough. The company should retain the contract, progress claim, tax invoice, and evidence of payment or settlement.
In construction, a project may be profitable from an accounting perspective but still suffer from cash flow pressure because collections are delayed or payments to suppliers and subcontractors are high. The opposite may also happen where the company receives a large advance payment but profit has not yet been earned.
For this reason, two reports should be prepared together: project profitability report and project cash flow report. The first shows the financial result, while the second shows collections, payments, and funding needs.
This separation helps management with pricing, negotiation, collection follow-up, and identifying projects that need funding or cost re-estimation.
Construction companies need Corporate Tax review through their financial statements and project accounts. Revenue, direct costs, shared expenses, provisions, retention, losses, related parties, and any tax adjustments should be reviewed before filing the Corporate Tax return.
A project extending over more than one financial period requires careful tracking of income, costs, and obligations so that the financial statements and Corporate Tax position are based on proper figures, not only on bank collections.
Related party transactions should also be reviewed, such as work performed between group companies or charges for management fees, equipment, labour, or shared services between related parties.
Al Basma organizes construction accounts by setting up project cost centres and linking contracts, progress claims, invoices, collections, and costs to each project.
We help review VAT for progress claims, invoices, and stage payments, review input VAT from suppliers and subcontractors, and prepare schedules for retention, advance payments, and overdue balances.
We also prepare monthly or periodic reports showing project profitability, cash flow, costs, collections, VAT position, and Corporate Tax position so management can make clear decisions.
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