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HMRC internal manual

Construction Industry Scheme Reform Manual

The scheme: scope of incidental: appendix to Regulation 22

Regulation 22 (1) of The Income Tax (Construction Industry Scheme) Regulations 2005 (S.I.2005/2045) provides that where deemed contractors make a payment under a construction contract, for construction work undertaken on a property they use for the purposes of their business, then that payment will not fall within the provisions of the Construction Industry Scheme.

However, Regulation 22(2) provides that a property is not being used for the purposes of a persons business if it is for sale, or to let, or is held as an investment by that person. It also states that in determining if a property is used for the purposes of the business, any incidental use of the property by any other person can be disregarded.

This appendix provides examples whereby, if construction work was undertaken, it would be excluded from the Construction Industry Scheme by virtue of Regulation 22(1), or included within the scheme by virtue of Regulation 22(2).

Further guidance can also be obtained at

Exclusion allowable Exclusion exempted
A business commissions the building of a new factory/industrial plant, or the extension/alteration of an existing factory/industrial plant, to be solely used for the purpose of that business. An Insurance company providing property insurance, directly engages and pays subcontractors to carry out repairs to the properties of their policy holders, rather than making payments directly to the policy holders themselves.
A Company commissions the building of new office accommodation, or the refurbishment of existing office accommodation, which is to be used for the purpose of that Company’s business. A property investor engages a subcontractor to carry out a £5m refurbishment to a recent property acquisition. As the property is held as an investment, the contract payment to the subcontractor falls within the Construction Industry Scheme. (N.B. Property Investors will only be brought into CIS as deemed contractors, where their expenditure on construction operations exceeds £1m per annum, as per Section 59(1)(L) Finance Act 2004).
A retailer commissions the building of a new shop/store, or the refurbishment of an existing shop/store, to be solely used for the purpose of their business. A supermarket chain contracts with a subcontractor to build them a new store in a development that will also include the construction of some social housing, which the supermarket chain intends letting to tenants. 
A business acquires a property for the purpose of its own business use (for example: - to use for storage purposes). A business knowingly purchases some land containing existing long term leased buildings that cannot be sold or demolished due to imposed restrictions. The business continues to let the buildings to tenants.
To secure the purchase of a property, a business was required to also purchase a residential flat adjoining that property. The flat is surplus to requirements and there is no intention to let it. The business has construction work undertaken on the main property and/or the adjoining flat.   A property owner owns a building which is surplus to their own requirements. That building is therefore let to an unconnected third party which uses it for their own purposes.
A Company acquires a business property which includes a flat that is surplus to requirements. The flat is used as an incentive for the Company’s employees. For example: A business purchases land and let properties sited on that land, knowing that historically those properties have proven difficult to sell due to nearby external influences. The business therefore continues to let those properties.
* Short term accommodation for a Locum working within the business (but not where it is an assured shorthold lease)  
* An incentive to attract employees to work in a remote area  
* Accommodation to be used when it is business critical to have an employee on site  
A business undergoing restructure is subletting existing floor space within a property it owns, until that property is ready to be used by that business. A retail chain builds a commercial building on its surplus land with the intention of letting that building to an independent tenant. (For example a supermarket chain building a petrol station alongside one of its stores which it then lets to a fuel retailer).  
A Company’s business premises has to be demolished on the advice of an independent surveyor/structural engineer due to a risk to public health. A retailer owns a mix of stores/warehouses in various locations and is considering renting out some of those properties that are sited in locations where the market for their retail products is low.  
  A retail company letting a proportion of their trading premises to franchisees. (For example: - a clothing retailer letting part of their stores to franchised coffee shops).