| Deduction, registered subcontractor | 20% |
| Deduction, not registered | 30% |
| With gross payment status | 0% |
| Contractor's monthly return | by the 19th of the following month |
| Payment to HMRC | by the 22nd (by post by the 19th) |
| Turnover test for gross payment, company | £30,000 per director or £100,000 for the company |
| Building site as a permanent establishment | under UK treaties usually only after more than twelve months |
What CIS is and whom it affects
Under the Construction Industry Scheme the client, the contractor, keeps part of the payment to its subcontractor and pays it over to HMRC. The deductions are advance payments towards the subcontractor's tax and National Insurance. Contractors must register. Subcontractors need not, but without registration more is deducted.
Covered is most construction work on permanent or temporary buildings and structures, and civil engineering such as roads and bridges: site preparation, demolition, building, alteration, repair and decorating, installing heating, ventilation, electrics and water, and cleaning after building. Not covered are, for example, architecture and surveying, hiring scaffolding without labour, carpet fitting, manufacturing and delivering materials.
You can be a contractor without being a builder: a business outside construction that spends more than £3 million on construction work within twelve months is a deemed contractor. For businesses based outside the UK the same rules apply as soon as they work there as contractor or subcontractor.
As a subcontractor from abroad
The typical case: a UK main contractor engages your firm for installation, facades or building services. Before the first payment, it must verify you with HMRC and learns how much to deduct. If you are not registered, it is 30 percent. As a registered subcontractor it is 20 percent, with gross payment status nothing.
The deduction is worked out on the invoice without VAT and without the cost of materials you bought yourself; that includes consumables, fuel other than for travel, hired plant and prefabricated components. Keep evidence of your material costs, or the contractor will estimate. Within 14 days of the end of each tax month you receive a statement of payment and deduction. You need these statements later for the refund.
A foreign company registers before work starts, in writing to HMRC and with a certificate from its home tax authority, the original tax clearance certificate. Gross payment status can be applied for at the same time. Whatever was deducted but is not owed as UK tax you reclaim from HMRC with the statements; HMRC first sets the deductions against any PAYE or corporation tax owed.
Gross payment status: being paid without deduction
With gross payment status the contractor pays your full invoice, and you pay your own taxes, as a company through the UK corporation tax return. HMRC checks three things: your business runs through a bank account, you have paid your taxes and contributions on time in the past, and your turnover of the last twelve months, without VAT and materials, reaches a minimum. For a company that is £30,000 per director or £100,000 for the whole company.
The status is reviewed every year. File or pay late and you risk it; after withdrawal you can only reapply a year later. For a firm just starting in the UK, the turnover test is often the hurdle; then the first project runs at 20 percent deduction, with the refund after the tax year.
If you are the contractor: the monthly duties
If you award construction work in the UK to subcontractors, you are a contractor. The following applies, even without a UK company.
- 1
Register before the first subcontractor starts
Contractors register through the route for new employers and receive an employer reference. Businesses based outside the UK use a separate form and enclose the certificate from their home authority.
- 2
Check employment status
Check whether the person should really be employed. On the monthly return you confirm that your subcontractors are not employees; a false statement can cost up to £3,000.
- 3
Verify subcontractors
Before the first payment you ask HMRC for the deduction rate, online or through CIS software.
- 4
Deduct and issue statements
Apply the rate to the amount without VAT and materials, and give the subcontractor a statement within 14 days of the end of the tax month.
- 5
File and pay
Monthly return by the 19th, payment by the 22nd of the following month. With no payments you file a nil return or report a pause. File one day late and you pay £100, rising after that.
- 6
Keep records
Keep records for at least three years after the end of the tax year.
VAT: construction services and the domestic reverse charge
Construction services relate to land and are therefore subject to VAT where the land is, in the UK. If your customer is VAT-registered in the UK, it accounts for the tax. If not, for example a private client, you owe UK VAT and must register. The basics are in VAT on services.
Within the UK construction sector the domestic reverse charge applies too. It covers most construction services where supplier and customer are UK-registered and the payment is reported under CIS. The customer then accounts for the VAT, not you. It does not apply if the customer confirms in writing that it is an end user or intermediary supplier, nor to the work of architects, surveyors and consulting engineers. If you are UK-registered and supply other construction businesses, your bookkeeping must handle both.
Permanent establishment: the twelve-month limit in the treaties
CIS governs the deduction, not whether your profit is taxable in the UK. That is decided by the tax treaty. UK treaties typically say: a building site or installation project is a permanent establishment only if it lasts more than twelve months; check your treaty for its exact period. Until then the profit generally stays taxable at home, and you reclaim the CIS deductions.
If the project lasts longer, the site is a permanent establishment, and a foreign company pays UK corporation tax on the profits attributable to it. What follows is in branch or subsidiary. Separate from that is income tax on your people on site; how postings work for tax and social security is in posting staff to the UK.
Frequently asked questions about the Construction Industry Scheme
Do I have to register as a foreign subcontractor?
It is not compulsory, but without registration your contractor deducts 30 instead of 20 percent. A foreign company registers before work starts.
Do I get the deductions back?
Yes, so far as they exceed your UK tax. As a foreign company you send your contractor's statements to HMRC. If you are also an employer or contractor in the UK, HMRC has a separate procedure for it.
Does CIS apply to architects and planners?
No. Architecture and surveying are excluded, as are deliveries of materials and scaffolding hire without labour.
When does my UK site become a permanent establishment?
Under most UK treaties when it lasts more than twelve months. How to count the duration with several phases or interruptions we check case by case.
Sources: GOV.UK: Construction Industry Scheme (CIS); GOV.UK: What you must do as a CIS contractor; GOV.UK: What you must do as a CIS subcontractor; GOV.UK: Construction Industry Scheme for businesses based outside the UK; GOV.UK: Claim a refund of CIS deductions as a limited company; GOV.UK: VAT domestic reverse charge for building and construction services; GOV.UK: Place of supply of services (VAT Notice 741A)
