Construction Industry Scheme Rules: a reminder.

Article | Judith Pederzolli | 5th July 2022

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Charities are exempt from Construction Industry Scheme (CIS), but their trading subsidiaries which are involved in constructions operations are not.

The most recent Agent Update from HMRC has highlighted the fact that some property investment businesses do not realise that they may be captured by the CIS rules.

If your subsidiaries undertake property investment activities and may incur £3m in a rolling 12 months period on construction operations then it would be worth reading through HMRC’s narrative below.

A trading subsidiary which is a construction company will be caught under the main contractor rules.

Application of the Construction Industry Scheme to property investment Companies

We are seeing a number of property investment companies undertaking substantial redevelopments such as the example below, being unaware of the need to register as a contractor within the Construction Industry Scheme.

If you think your business is acting as a contractor, it must comply with the scheme.

If it does not, the business can be left with an unexpected tax liability that they may not be able to recover from the subcontractor.

The following three headings are reminders of the published guidance giving the definitions of property developers and property investment businesses.

Property developers

Property developers are included within the meaning of mainstream contractors because their business activity is the creation of new buildings, or the renovation or conversion of existing buildings, or other civil engineering works. The same is true of a speculative builder.

Property investment businesses

A ‘property investment business’ is not the same thing as a ‘property developer’. A property investment business acquires and disposes of buildings for capital gain or uses the buildings for rental. It need not be involved in the construction, alteration or extension of buildings.

Even so, if its property estate is substantial enough, its expenditure on construction operations may well cause it to fall within the meaning of a ‘deemed contractor’. Find out about who is a ‘deemed contractor’.

When a business that is ordinarily a property investor undertakes some activities attributed to those of ‘property development’, they will not usually be considered a mainstream contractor during the period of that development.

This is because the usual nature of the business is ‘property investment’ and not ‘property development’.

When the property investment business enters into multiple or substantial contracts relating to construction operations, for the purposes of development of one or more properties, you will need to decide if the nature of that business has now changed from ‘property investor’ to ‘property developer’.

If this is the case, the business would now be considered to be mainstream contractors as the nature of their business has changed.

When, at a future date, they revert to property investment activities only, then their status as a deemed contractor should be applicable once again.

If their expenditure is likely to remain below £3 million on a rolling 12 month period, then deregistration from CIS may also be considered appropriate.

However, where it is clear that further property development is likely to be undertaken in the future, it may be more appropriate for the business to remain registered for the Construction Industry Scheme.

When property development appears to be a regular and substantial activity of any business purporting to be a property investment business, then they are likely to be a property developer and therefore a mainstream contractor within the Construction Industry Scheme.


A property investment business acquires a number of properties which it intends to let, but before letting, minor refurbishment is required to bring the properties up to a suitable standard to be able to let them.

For the purposes of the Construction Industry Scheme, we would see this as the normal activities of a property investor. If the expenditure on such activities exceeds £3 million in a rolling 12 month period, then the scheme applies.

The property investment business then acquires a large, dilapidated hotel to add to its portfolio, and decides to convert the building into a series of flats which it will then individually let out.

As a result, substantial development is required to the property to change the building to its new use.

In respect of this particular development and contract, we would regard the property investment business as having taken on the mantle of a mainstream contractor as its business activity is now that of construction operations.

Next steps

If you are concerned about how this may impact your charitable group or for more information please contact PEM.

About the author

Judith Pederzolli

Judith joined PEM in 2001 and specialises in the property and not for profit sectors. Judith is primarily involved in tax advisory Read more …