This guide outlines what you need to know about the Construction Industry Scheme before operating in the UK.
If you’re a contractor or subcontractor working in the United States, you might be looking for additional job opportunities elsewhere. Perhaps you want to work on a building in another country or lend your expertise to an overseas contractor. Maybe they’re even offering you a higher pay rate to pack your bags and make the move.
In this case, you may want to consider a job in the United Kingdom. The country’s construction industry is renowned for its high standards, excellent working conditions and high wages, regardless of experience level or position.
Of course, there are a few key financial factors to consider, including the Construction Industry Scheme.
What Is the Construction Industry Scheme?
The Construction Industry Scheme is a United Kingdom tax policy created by the HM Revenue and Customs to combat perceived tax evasion and fraud within the sector. Contractors must register for the scheme, make deductions from their subcontractors’ payments and give them to HMRC. These act as advance payments towards the subcontractors’ tax and National Insurance. This is different to a general contractor license.
However, these rules only apply to self-employed contractors who work in particular industries. For instance, the subcontractors who work in demolition, repairs, decorating and power line installation may have to register for CIS. Meanwhile, construction workers who specialize in architecture and surveying, carpet fitting or material deliveries are exempt from the scheme.
The HMRC CIS manual categorizes careers for subcontractors in the U.K., so contractors know whether to treat them as IR35 or CIS employees. All U.K. citizens to whom the Construction Industry Scheme applies can opt out of the scheme. However, they’ll have to pay more in deductions when they file their taxes at the end of the year. Often, this negative incentive discourages workers from choosing the latter option, thus serving its purpose in increasing tax revenue and potentially reducing evasion.
Considerations for International Construction Workers
International subcontractors working for U.K. contractors must register for CIS before completing any work overseas. HMRC doesn’t allow them to opt out of the scheme or file as IR35 employees. Subsequently, there are a few important factors international construction workers must consider before looking for international work or signing a job contract in the U.K.
1. U.S. Income Taxes
The United States Internal Revenue Service considers its country’s subcontractors self-employed individuals. As such, they’re responsible for making estimated quarterly payments to the IRS, regardless of whether they work within the U.S. or overseas. Essentially, you’ll have to pay taxes to two different countries, which can certainly make a dent in your savings.
While the cost of living in the U.K. is almost 0.5% lower than in the U.S., you still need about $4,700 per month to finance a modest lifestyle in London. Meanwhile, you may have to pay additional expenses to keep your house or store your car and belongings back home. After all, you can only work so long on a visa before you must return to your home country.
2. Foreign Earned Income Exclusions and Credits
Some international construction workers may qualify to omit some of their foreign-earned income from U.S. tax returns. You may be eligible to exclude up to $108,700 from your 2021 earnings. This year, the IRS increased the amount to $112,000.
This provision is called the Foreign Earned Income Exclusion and it reduces tax liability for certain taxpayers, including overseas employees working in construction. To qualify, you must live in the U.K. for at least 330 full days during a single year.
Those who fail to meet these requirements may qualify for the Foreign Tax Credit instead. In this case, the U.S. government will offer a nonrefundable credit for income taxes you pay under CIS. This is available to anyone who works in a foreign country or receives investment income from a foreign source.
3. Expenses and Deductions
CIS-registered contractors and subcontractors can claim several expenses on their taxes. These may include tolls, parking, insurance, equipment maintenance, home office supplies, accountancy fees and other business-related costs. Many professionals open a business account to track and organize these expenditures for the IRS and HMRC.
Additionally, you must retain records of such expenses in case either agency were to audit your taxes. Keep evidence of any Construction Industry Scheme deductions, too, so you can receive compensation through the Foreign Tax Credit. The proper documentation provides proof of business expenses and income to effectively avoid tax trouble in both countries.
4. Currencies and Exchange Rates
It’s also important to note that all income you receive from your U.K. employer will be in British pounds. Are you ready to deal with foreign currencies, exchange rates and conversions? Exchange rates fluctuate constantly, so you may have trouble doing the math when it comes to expenses, exclusions and business bank accounts. In this case, it may be helpful to work with a financial adviser who can complete the paperwork for you.
How to Work in Construction in the UK
Finding a job in construction in the U.K. might be simpler than you might think. The pandemic has caused construction in London and other major cities to fall over the past few years. Now, many employers and contractors face a shortage of skilled workers and tradespeople.
If you think your skills may be of some use overseas, conduct a quick online search for job postings for construction workers. Once you find a few that might make a good fit, register for the Construction Industry Scheme (CIS Scheme). After your contractor receives your information, they’ll provide you with a voucher or certificate detailing deductions at the end of each month.
