beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: contractors: businesses becoming / de-registering as ‘deemed’ contractors

Strictly, deemed contractor status applies to a business as soon as the necessary conditions apply (CISR12050).

However, some deemed contractors will only discover that they have deemed contractor status after the event. Furthermore, a business needs time to set up the systems necessary to apply CIS.

As soon as you become aware that a business has become a deemed contractor you should agree an early date from which the business will undertake to comply with its contractor obligations. When doing this, you should allow the business sufficient time to set up the necessary internal procedures to operate the Scheme.

A complex business with numerous branches and many small contracts may require several months to get organised. Even a small business will require a certain period of grace to make the necessary arrangements.

Where appropriate, you should draw the attention of the deemed contractor to the small payment arrangements allowed for in SI2005/2045 reg 18. There is more on small payments arrangements at CISR15150.

Where you determine that a business is a deemed contractor you should follow the guidance in the section at CISR30000 to set up a contractor record on the CIS system. If, however, you have agreed a period of grace you should put your file on BF and take the necessary action once the period has passed.

If a business that owns or leases a substantial amount of property does not reply to enquiries about its expenditure on construction operations, but accounts or returns over the last three years suggest that it may well be a ‘deemed contractor’, you should send a warning letter along the lines of the text set out at the bottom of this page. If no reply is received within one month you should set the business up as a contractor as indicated above.

Any case of difficulty should be referred to the CIS Technical Team for advice (See CISR97090).

Public bodies

Special arrangements apply to setting up new public bodies to operate CIS. Consult the separate information panels listed below for these

Local Authorities: CISR12090  
Government departments and agencies: CISR12110  
NHS trusts: CISR12120.  

For more details including the strict definition of ‘deemed contractors’ you should refer to CISR12050 and (FA04/s59 (3)).

Text of ‘warning letter’

I wrote to you on [insert date] enquiring about your business’s expenditure on construction operations. I need this information in order to determine whether you are liable to operate the Construction Industry Scheme. I have not received a reply to date.

I must therefore assume that you are a contractor within the terms of Section 59(1)(l), Finance Act 2004. If I do not hear from you within the next month I shall expect you to begin applying the Construction Industry Scheme to payments made for construction operations three months from this date and I will arrange for the necessary literature to be issued to you in due course.

Businesses seeking to de-register as contractors

A business brought into the Scheme because it spends an average of £1 million or more each year on construction operations (see CISR12050) may tell the department that it will only ever be making payments for construction operations that fall entirely within SI2005/2045 reg 22 - see CISR15140 and CISR17230. As a result, it may ask to be de-registered from the Scheme as a contractor. Where you are satisfied that this is the case, you may take the necessary steps to cease the contractor’s record.

It is important to note that it is the payment and not the business that is exempted by SI2005/2045 Reg 22. Where businesses defined by FA04/s59(1)(l) are allowed to effectively ‘de-register’ from CIS, this is on the clear understanding that:

  • Any payments it makes under a contract relating to construction operations will always relate to property used for the purposes of the business, and
  • The payments will not relate to payments for construction operations to property that the business intends to sell, let or hold as an investment

Deemed contractors that have expenditure on construction operations in the normal course of their business, sometimes within CIS, and sometimes exempted by Reg 22, should continue to operate within the scheme. Where this is the case either nil returns or periods of inactivity (see CISR67000) should be filed as appropriate.

On their monthly return the business can indicate that they do not anticipate making any construction payments for a period of up to six months and all future monthly returns will then be inhibited for the period they specified (see CISR67010). At the end of this period the business will get another monthly return and if they are still in the same position should once again indicate that they do not anticipate making construction payments for a further period of up to six months. This process can then continue indefinitely until such time as a payment within the Scheme is made by the business or they can confirm that they will definitely not be making any payments that fall out of the exemption afforded by SI2005/2045 reg 22 in which case you may wish to de-register them completely.

If a business is de-registered in this way, you should inform it that the onus remains on the business telling us later if they do need to make any payments upon which CIS needs to be operated. In such circumstances, they will need to be set up as a contractor again.