Property development is often exciting and lucrative, but hardly ever straightforward. From balancing contractors to keeping your projects on track and finding funding, accounting is probably the last thing on your mind. But the right accounting approach is among the most critical determinants of whether a development succeeds or experiences expensive hiccups.

It’s not just paying the correct amount of tax. Structure, cash flow, compliance, and reporting are all part of the big picture. Without financial planning, even the most promising project can quickly disintegrate.

And that’s where Reed & Co. come in. We are specialist property developer accountants, serving clients across the UK, and we can help you to get your structures sound, be compliant and save you money. So what are the basics?

Why Structure Matters in Property Development

The structure you choose sets the foundation for everything that follows. Here’s why it matters so much:

• Risk protection: Property development is capital-heavy and carries risks. A limited company or SPV (special purpose vehicle) can shield personal assets if things don’t go as planned.
• Tax efficiency: The correct structure will enable you to avoid unnecessary tax bills and will also aid in the ease of profit extraction.
• Lender confidence: Lenders, banks and investors like to see a professional setup. The type of structure you choose can impact how easy it is to attain financial backing.
• Project-by-project benefits: With the proper setup, you can compartmentalise developments for cleaner bookkeeping, more meaningful management arrangements and simpler investor reporting.

Overview of Common Structures

There are a few main structures in property development businesses. They all have their pros and cons, and the better fit depends on your goals, the scope of your projects and your risk appetite.

Sole Trader

This is the most straightforward path; you trade in your own name. It’s easy to set up and cheap to operate. But there’s a trade-off: You’re personally liable for any debts. And if a project fails, your own assets could be at stake. That’s why being a sole trader tends to be only suitable for small-scale ventures.

Limited Company

A limited company is its own specific legal entity, and so any liability will fall to it rather than you as an individual. This arrangement offers greater tax planning flexibility and can appear more professional to lenders. It’s also easier to bring in other shareholders or investors if your projects expand.

SPV (Special Purpose Vehicle)

An SPV is a form of limited company that exists only to complete a single development or project. Lenders favour SPVs because the accounts are transparent and not mixed with other business activities. What’s more, for developers dealing with outside investors, SPVs simplify things and reduce some degree of risk.

Holding Company

For developers with numerous ongoing projects or those in portfolio development, a holding company setup is beneficial. It keeps the ownership centralised, while separating the risks between various subsidiaries. This configuration is desirable for growing firms that seek gradual expansion.

Specialist Tax Considerations

Perhaps the trickiest area for property developers is tax. Get it wrong, and the expenses can snowball. Here’s what to know:

• Corporation Tax vs Income Tax: Limited companies pay Corporation Tax, which is typically at a lower rate than higher-rate Income Tax. This can make a big difference in overall profitability.
• VAT registration: Whether you should register for VAT depends on the type of development you are undertaking. Residential developments, commercial conversions and mixed-use developments all have different treatments. Registering (or not) at the wrong time can be costly.
• Stamp Duty Land Tax (SDLT): Planning around SDLT is critical. Reliefs such as the Multiple Dwellings Relief can save significant sums, but only if considered from the start.
• Profit extraction: When you make a profit, you will want to take it out. Options include salary, dividends or director’s loan. What constitutes the right balance will depend on your situation.

Day-to-Day Accounting for Property Developers

Big-picture planning is essential, but so is looking at the day-to-day. Developers want systems that keep projects smooth and in compliance.

• Project-based bookkeeping: You will need to keep track of costs per development phase. It allows you to measure profitability and accurately separate expenses.
• Subcontractors & CIS compliance: If you use subcontractors, then your company will need to comply with the Construction Industry Scheme (CIS). That includes dealing with deductions, reporting, and making sure HMRC is satisfied.
• Cashflow management: Property developments can mean large up-front costs with returns often coming in stages, years down the line. Always keep an eye on your cash flow so that you don’t end up hitting a cash crunch in the middle of a project.
• Investor & lender reporting: Backers need to feel comfortable. Having clear, up-to-date accounts makes you look responsible and keeps doors open for future funding.

Financing & Lender Preferences

The structure you choose may not only affect what you pay in taxes, but it may also impact how easy or difficult it is to borrow.

• Why lenders prefer SPVs: A lot of lenders simply insist that developments are held in special purpose vehicles. They appreciate the transparency and risk reduction associated with ring-fencing one project.
• Structure and borrowing terms: How you’re set up can influence interest rates, loan-to-value ratios and whether finance is approved at all.
• Transparent reporting: Creditworthy, well-prepared accounts make a big difference. And developers who can prove accurate records typically get better terms and build strong relationships with lenders.

Common Pitfalls and How to Avoid Them

Plenty of developers run into avoidable problems. Here are some of the most common traps we see:

• Choosing the wrong structure too late: Changing structures midway through a project can be messy and expensive. Plan ahead before you buy.
• Overlooking VAT & SDLT: It may be tempting to set these considerations aside, but doing so can be a costly error. Both VAT and, in particular, SDLT can significantly reduce profits if not planned for early. Proactive planning helps avoid unexpected liabilities.
• Mixing personal and business finances: All too often, we borrow from one pot to fill the other, but it only creates confusion and compliance headaches. Keeping finances separate is non-negotiable.
• Delaying professional advice: Far too many developers only consult an accountant once a problem has arisen. It saves money and stress to get advice in the beginning.

How Reed & Co Can Help

We work exclusively with developers, and we know the issues you are confronted with. Our role goes beyond number-crunching:

• Protecting against financial risks: We assist you in setting up a project in a manner that protects you personally and limits risk.
• Proactive tax planning: From VAT to SDLT, we plan in advance so you don’t receive unexpected bills.
• Saving money through foresight: The sooner we are involved, the greater the added value we bring. Our clients build the proper foundation in structure, tax, and compliance from the start so they don’t lose their profits.

Whether you’re planning your first project or expanding your portfolio, we’re here to simplify the financial aspects of development.

If you’re a property developer looking to protect profits, structure projects correctly, and stay compliant, contact Reed & Co. today for tailored accounting and tax advice.