Who this is for: UK property developers, investors, retailers, manufacturers and other non-construction businesses planning major build/refurb programmes and construction firms advising them.
Why it matters: You can be pulled into CIS as a deemed contractor purely because of how much you spend on construction £3,000,000+ in a rolling 12 month period even if construction isn’t your core trade. Once you cross the line, you must register and operate CIS on payments to subcontractors. GOV.UK
What is a “deemed contractor” (plain English)
- If your business doesn’t include construction operations, but your expenditure on construction operations over the previous rolling 12 months exceeds £3m (VAT excluded), you are a deemed contractor and must register for CIS and operate it. GOV.UK
- HMRC lists typical examples: banks, retailers, breweries, oil companies, property investors, plus specified public bodies if they cross the same threshold. GOV.UK
“Rolling” means you check month-to-month (or day-to-day) the last 12 months’ construction spend. When your cumulative 12-month spend tips over £3m, you become a deemed contractor from that date. GOV.UK
What counts towards the £3m?
- Expenditure on construction operations included in the contract payment excluding VAT (e.g., £1m + VAT counts as £1m). GOV.UK
- “Construction operations” follow CIS scope (site prep, fit-out, M&E, scaffolding, decorating, etc.). See the scope chapters in CIS 340. GOV.UK
When does it “bite” (what you must do, and when)
- Monitor monthly: keep a running total of your last 12 months of construction spend (ex-VAT). GOV.UK
- On crossing £3m: you’re a deemed contractor from that date; register for CIS and be ready to operate CIS before the next subcontractor payment. HMRC expects immediate registration; inspectors can allow a short set-up grace by agreement (internal guidance), but don’t bank on it. GOV.UK
- Operate CIS correctly: verify subs and apply 0%/20%/30% on the labour element, issue statements, file CIS300 by the 19th, and pay by the 22nd (electronic).
– How to run the month: CIS300 & Payment/Deduction Statements.
– Verification steps: Subcontractor verification.
Powerful exceptions for “own-use” property (Regulation 22)
If you only became a contractor because you crossed £3m (i.e., you’re not a mainstream construction business), you do not need to apply CIS to payments relating to property used for the purposes of your own business (company groups and 50%+ subsidiaries may also be covered). Typical exempt examples: your own offices, warehouses, factories, call centres including certain intra-group use. GOV.UK
Not exempt under Reg 22: works to property for sale or to let, or held as an investment (unless sale/letting is purely incidental). Example: a property investor’s refurbishment of an investment asset CIS applies. GOV.UK
Key nuance: Reg 22 exempts the payment, not the business. You may have some contracts inside CIS and some exempt. Keep a clear file note per project. GOV.UK
Small contracts easement (Regulation 18)
Deemed contractors (not mainstream) can apply to HMRC for a small payments arrangement CIS needn’t apply to individual contracts where the value net of materials is ≤ £1,000 (ex-VAT), if approved in advance. Don’t split jobs to fit this limit. GOV.UK
Developers vs investors (why it matters)
- Property developers carrying out development for sale are usually mainstream contractors on those activities CIS applies irrespective of the £3m rule. Investors are typically brought in only if they exceed £3m (and then only some payments can be exempt under Reg 22). GOV.UK
Deregistering when spend drops back
You remain a deemed contractor until you can satisfy HMRC that your previous 12-month construction spend has fallen below £3m and is not expected to re-exceed imminently. HMRC’s internal guidance allows de-registration in these circumstances; operate CIS until HMRC confirms. GOV.UK
Worked examples (so you can judge your risk fast)
Example 1: Retailer refurbishment programme
A retailer spends (ex-VAT): £800k (Aug), £950k (Nov), £1.4m (Mar). In March, its rolling 12-month total hits £3.15m → it becomes a deemed contractor in March. It must register and operate CIS on new subcontractor payments from that point, with own-use refurb of stores likely exempt under Reg 22, but any investment or for-sale projects in scope. GOV.UK
Internal how-to next: CIS300 & Payment/Deduction Statements.
Example 2: Property investor
A property investor engages a contractor for a £5m refurbishment of a building held as an investment. Even if the investor crossed £3m and is a deemed contractor, Reg 22 does not exempt payments for investment property so CIS applies. GOV.UK
Example 3: Mixed group use
A holding company refurbishes a group HQ (own use) and a separate block intended to let. HQ works may be Reg 22-exempt, while the to-let block isn’t. Track projects separately; verify and operate CIS where required. GOV.UK
Verification basics: Subcontractor verification.
Compliance flow (copy/paste)
- Check status first (PAYE employee vs subcontractor) with CEST; CIS is not an employment status test. → CIS isn’t employment status: getting PAYE vs subcontractor right
- Monitor £3m rolling spend monthly (ex-VAT). When you tip over, register and be ready before the next payment. GOV.UK
- Assess Reg 22 per project (own-use vs for sale/let/investment) and document the decision. GOV.UK
- Consider Reg 18 small-contract approval if relevant (≤ £1,000 net of materials, pre-approved). GOV.UK
- Run month-end CIS: verify, split labour vs materials, issue statements, file CIS300 by the 19th, pay by the 22nd.
– Labour/materials split: CIS invoice anatomy
– Month-end: CIS300 & Payment/Deduction Statements
– Where DRC also applies: CIS vs VAT Domestic Reverse Charge: when both apply and Reverse Charge VAT pitfalls
Strong FAQ
Is the £3m test based on invoices or payments?
HMRC applies a rolling 12-month expenditure test for construction operations—track the ex-VAT spend included in contract payments. GOV.UK
From exactly when do I start operating CIS after crossing £3m?
From the date you exceed the threshold you’re within CIS and must register immediately and be ready before the next subcontractor payment. HMRC inspectors can agree a short grace to set up systems, but treat that as exceptional. GOV.UK
We refurbish our own offices—do we still have to operate CIS?
If you’re a deemed contractor, Reg 22 can exempt payments related to property used for your own business (and certain group use). But works to investment/for-sale/for-let property are not exempt. Document the decision per project. GOV.UK
Can we avoid CIS for very small jobs?
Possibly. Reg 18 lets deemed contractors apply to HMRC for a small payments arrangement where the contract value net of materials is ≤ £1,000—with approval and no contract splitting. GOV.UK
When can we deregister?
When you can evidence that your previous 12-month construction spend is below £3m and isn’t expected to re-exceed imminently—HMRC may then cease your contractor record. Operate CIS until HMRC confirms. GOV.UK
Sources (GOV.UK)
- Who must register; deemed contractor £3m concept (overview). GOV.UK
- Applying the statutory £3m rolling test; VAT-exclusive spend; “from that date”. GOV.UK
- Deemed contractors—who counts; public bodies. GOV.UK
- CIS 340 guidance (CIS scope; deemed vs mainstream overview). GOV.UK
- Regulation 22 own-use exemption (what’s in/out; examples). GOV.UK
- Regulation 18 small payments arrangement (≤ £1,000 net of materials; approval). GOV.UK
Next Steps
Want a quick sanity-check on your rolling spend and project-by-project Reg 22 calls?
Book a 20-minute CIS Deemed Contractor check-in. We’ll review your tracker, confirm which projects are in scope vs Reg 22-exempt, and ensure your CIS month-end runs cleanly—before the next payment.