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HMRC internal manual

Construction Industry Scheme Reform Manual

The Scheme: construction operations: reverse premiums – examples of what does and does not constitute a reverse premium for CIS purposes.

A payment for construction work which constitutes a reverse premium for CIS purposes, does not fall within the provisions of CIS, so the payment does not need to be subject to any CIS deduction or reported to HMRC via the CIS reporting provisions when made.

CISR14040 explains what does/does not constitute a reverse premium for CIS purposes.

CISR14045explains which payments are excluded from being reverse premiums for corporation tax and income tax purposes, but not for CIS purposes.  

Contained below are some examples to explain what HMRC does and does not consider to be a reverse premium for CIS purposes. See also BIM41085. 

Examples:-

A property developer is constructing a new shopping mall which they will let out to various retailers once the construction build is complete. A potential tenant approaches the property developer (landlord) enquiring about letting out one of the retail outlets as a hairdressing salon. The Landlord offers to contribute towards the fitting out of the outlet with kitchen & washroom facilities, reception seating area, shop counter, hot water supply & plumbing to five wash basins and hairdressing chairs on the condition that tenant will take out a 5 year lease on the shop. This inducement payment will qualify as a reverse premium for CIS purposes as it solely constitutes a payment to the tenant to fund tenant works.

A property owner (landlord) is building a number of adjoining properties which they will let to tenants to use for retail and leisure purposes. One potential tenant, a restauranteur, approaches the landlord about renting one of the buildings to use as a Cantonese restaurant. In completing the build, the landlord agrees to pay that potential tenant towards the cost of placing a curved pagoda style roof on the building, provided they take out a 2 year lease on the property. That inducement payment will not constitute a reverse premium because the roof forms part of the cost incurred in producing a finished building, regardless of the style of roof fitted.  

A property developer is renovating a multi-story building into office space which they will then let to multiple tenants. The refurbishment includes installing a new heating and air conditioning system, water supply, new sanitation and kitchen facilities, electrical floor boxes, suspended ceiling with overhead lighting and new carpeting on each floor.

One potential tenant wishes to occupy a floor to use as a call centre but tells the landlord that to meet their specific business need, they would require multiple electrical floor boxes to be installed in specific areas on the floorplate to accommodate their telephony systems. To secure the lease, the landlord makes an inducement payment to the tenant towards them paying an electrician to install those floor boxes per the tenant’s requirements. As these additional floor boxes are specific to that particular tenant, the payment would constitute a reverse premium for CIS purposes as it is being used by the tenant to install specialist facilities solely required by them (tenant works).    

In this example, any carpeting must be laid after the floor boxes are installed. As part of that inducement to take the lease, the landlord also agrees with the tenant that they will make a contribution towards the cost of the tenant buying and installing a carpet of their choosing. This inducement payment from the landlord to the tenant, used for the installation of the tenant’s own carpet, will also fall to be a reverse premium for CIS purposes, as it also constitutes tenant works. 

Obtaining advice from the CIS Technical Team

Where you are unsure as to whether or not a construction payment constitutes a reverse premium, you should obtain as much information as possible about the arrangement in place and submit the case to your regional contact on the CIS Technical Team for advice (see CISR97090)