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HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: contractors: construction expenditure

When considering the amount of a business’s average annual expenditure on construction operations the following points should be noted.

UK operations

For the purposes of CIS, ‘construction operations’ include only operations carried out in the UK and its territorial waters (treated as the twelve-mile limit). Only expenditure arising for work done within these limits should be taken into account.

Repairs, maintenance and alterations

Expenditure on construction operations may be on

  • repairs and maintenance - normally charged in the profit and loss account
  • alterations or other new work - normally shown in the balance sheet.

Where the expenditure on repairs does not differentiate between repairs to property and repairs to plant and machinery it may be necessary to ask for an analysis to identify the portion relating to construction operations.

Similarly, where the additions to property do not distinguish between new work and alterations commissioned by the business itself on one hand and the purchases of buildings on the other it may be necessary to ask for an approximate allocation of the expenditure. You need not subject the allocation provided to close scrutiny. The aim is to identify businesses that are clearly deemed contractors.

You should exercise discretion, however, when asking for analyses of repairs or other expenditure. For example, a charge for repairs in the accounts of a manufacturing concern with a limited property estate can probably be regarded as substantially applying to its production machinery.

Groups of companies

Where the business under consideration is a company, the average expenditure test should be applied to its own construction expenditure. The test should not be applied to a group of companies as a whole.

Certain groups of companies concentrate their property service requirements on a single member company that deals with property transactions and maintenance for the rest of the group. Where this applies, and you conclude that the property company is a deemed contractor, expenditure on construction work placed through this company by other group members should be disregarded when considering whether each of the group members is a deemed contractor. This is so that the same expenditure is not counted twice.

Company reconstructions without change of ownership

Where one company transfers the whole or part of its trade to another company and CTA10/s940B applies to the transfer, all or some of the construction expenditure incurred by the first company is attributable to the second company in determining whether the latter is a deemed contractor.

If the whole of the trade is transferred, all construction expenditure incurred by the first company is attributable to the second company.

If only part of the trade is transferred, the construction expenditure attributable to the second company is proportional to the portion of the trade transferred.

Any apportionment must be ‘just and reasonable’ and if the second company disputes the apportionment proposed by the Inspector it may appeal against the decision.

This is provided for at FA04/s59 (4).