The deep crisis that the world has been facing for the past few years has sharpened the minds of Government officials with the objective of attracting foreign investment and promote the setting up of new businesses in their territories whilst, at the same time, attempting to deter their own businessmen form venturing abroad in search of new sites with a more attractive tax regime.
During this period the entrepreneurs based in the countries most badly affected by the economic downturn have started a search for markets in which to sell their products and services or specialized know-how and, where required, incorporating companies to carry out the activities.
In Spain, it appears that the companies that have most rapidly internationalised their activity have been the SME’s in the construction sector attracted by the infrastructure projects started by some of the EU countries, with the UK being one of them. Some entities have elected to incorporate companies whilst others decided to carry out the work under their existing businesses.
In the UK there is a special scheme, called the Construction Industry Scheme (CIS), to control the activities and oversee their compliance with their taxation obligations. This scheme applies to all subcontractors, whether company or self-employed person, that operates in the construction industry and works for a contractor in the UK, including the territorial waters limit of 12 miles. Even non-resident subcontractors have to register under this scheme. Contractors have the obligation to obtain a verification code for every subcontractor they employ and they will informed of the deduction to be applied to the payments to be made for work done. There are three rates of deduction depending on the tax status of the subcontractor, namely: gross payment or 0%, standard rate or 20% and higher rate or 30%. This last rate will be applied to non-registered subcontractors.
At the end of the tax year the subcontractors will be able to claim for reimbursement of the deductions suffered less any taxes previously offset against the deductions. The taxes that can be offset are limited to payroll related withholdings, Corporation Tax and deductions made to the company’s subcontractors by filing the P35.
CE Consulting Empresarial Limited UK can provide you with the appropriate advice and support to ensure compliance with your tax responsibilities and help you manage the financial impact of CIS deductions on your business.