Construction Industry Scheme

Am I a 'deemed contractor' under CIS?

Determine whether your business is a 'deemed contractor' under the Construction Industry Scheme. If you are not primarily in construction but spend over 3 million pounds on construction work in any 12-month period, you must register and operate CIS. This guide helps property developers, retailers, hoteliers, and other non-construction businesses understand their obligations.

UK-wide
Guide summary

Check if your business spends over £3 million on construction work in any 12-month period. If you do and your main business is not construction, you must register with HMRC as a 'deemed contractor' under the Construction Industry Scheme (CIS). You will then need to deduct tax from payments to subcontractors.

  • Register with HMRC if you spend over £3 million on construction in 12 months
  • Your main business must not be construction to be a deemed contractor
  • Calculate labour costs only (exclude VAT and materials)
  • Use any rolling 12-month period, not the tax year
  • Verify subcontractors before first payment
  • Deduct 0%, 20% or 30% from labour payments
  • Do not deduct from materials or VAT
  • Penalties apply if you get it wrong
  • Common affected businesses: property developers, retailers, hotels
  • Register before making payments after exceeding threshold
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Related guides in Tax Compliance

Register as a CIS contractor

How to register as a contractor under the Construction Industry Scheme (CIS). This guide explains who must register, …

The Construction Industry Scheme (CIS) does not only apply to construction companies. If your business spends significant amounts on construction work, you may be a deemed contractor and must register with HMRC to operate CIS.

This guide helps you determine whether your business falls into the deemed contractor category. Getting this wrong can result in penalties, and you may become liable for tax that should have been deducted from payments to subcontractors.

What is a deemed contractor?

A deemed contractor is a business that:

  • Is not primarily in construction - your main business activity is something else (retail, hospitality, property investment, manufacturing, etc.)
  • Spends over a threshold amount on construction operations - once you exceed this threshold, CIS rules apply to all your construction payments

The purpose of this rule is to prevent tax evasion in the construction sector. Large construction projects commissioned by non-construction businesses must still be subject to CIS deductions.

Decision tree: Are you a deemed contractor?

Work through these questions to determine your status.

Question 1: Is your primary business activity construction?

If YES: You are a mainstream contractor, not a deemed contractor. You must register as a CIS contractor as soon as you pay any subcontractor for construction work. The 3 million pounds threshold does not apply to you.

If NO: Continue to Question 2.

Question 2: Do you commission construction work?

Construction operations include:

  • Building or altering permanent structures
  • Civil engineering works (roads, bridges, tunnels)
  • Repairs, decorating, and refurbishment
  • Demolition and dismantling
  • Installing heating, lighting, power, water, ventilation, or air conditioning
  • Constructing or maintaining structures for offshore oil and gas

If NO: CIS does not apply to you.

If YES: Continue to Question 3.

Question 3: How much do you spend on construction operations?

Calculate your total expenditure on construction operations over any rolling 12-month period.

Include:

  • Labour costs paid to subcontractors
  • Payments to construction companies for work done
  • Combined labour and materials contracts (only the labour element)

Exclude:

  • VAT on construction payments
  • Cost of materials you purchase directly
  • Equipment hire (unless it comes with an operator)
  • Professional fees (architects, surveyors) - these are not construction operations

If your construction expenditure exceeds 3 million pounds in any rolling 12-month period, you are a deemed contractor.

Deemed contractor threshold
3,000,000 pounds (labour element, excluding VAT and materials)
Calculation period
Any rolling 12-month period (not tax year)
When CIS applies
From the date you exceed the threshold
Who is affected
Non-construction businesses commissioning significant construction work

Common businesses affected by deemed contractor rules

These types of businesses commonly become deemed contractors:

Property developers and investors

If you develop property for sale or rental, your construction costs on major developments will likely exceed 3 million pounds. Refurbishment of large buildings or multiple properties can also trigger the threshold.

Retailers with store fit-out programmes

Large retail chains opening or refurbishing multiple stores may exceed the threshold. Each individual project might be below 3 million pounds, but the 12-month rolling total is what counts.

Hotels and hospitality businesses

Major refurbishment projects, extensions, or new builds can trigger deemed contractor status. If you operate multiple sites, aggregate your total construction spend.

Manufacturers and industrial businesses

Building new facilities, extending factories, or major maintenance programmes can exceed the threshold.

Public bodies and housing associations

Local authorities, NHS trusts, universities, and housing associations frequently exceed the threshold through their construction programmes. These organisations are explicitly listed as contractors in CIS regulations.

What you must do if you are a deemed contractor

Once you exceed the 3 million pounds threshold, you must:

  1. 1

    Step 1: Register with HMRC as a CIS contractor

    Register through the employer registration process. You can do this online through Government Gateway. Registration should be completed before you make any payments to subcontractors after exceeding the threshold.

  2. 2

    Step 2: Verify every subcontractor before first payment

    Use the CIS online service to verify each subcontractor. HMRC will tell you what deduction rate to apply (0%, 20%, or 30%). You must verify before making the first payment - retrospective verification is not allowed.

  3. 3

    Step 3: Make the correct deductions

    Deduct the appropriate percentage from payments for labour to subcontractors. Do not deduct from materials or VAT - only from the labour element. Provide the subcontractor with a payment and deduction statement within 14 days.

  4. 4

    Step 4: File monthly CIS returns

    Submit a CIS return to HMRC by the 19th of each month, covering payments made in the previous tax month (6th to 5th). Even if you made no payments, you may need to file a nil return.

  5. 5

    Step 5: Pay deductions to HMRC

    Pay the deductions you have made to HMRC by the 22nd of each month (19th if paying by post). These are paid alongside any PAYE and National Insurance you owe.

  6. 6

    Step 6: Keep records

    Keep CIS records for at least 3 years after the end of the tax year they relate to. Records must include verification details, payment calculations, deduction statements issued, and returns filed.

What if I am approaching the threshold?

If your construction spend is approaching 3 million pounds:

  • Monitor your spending monthly: Calculate your rolling 12-month total at the end of each month
  • Set up systems in advance: Have CIS-compliant processes ready before you hit the threshold
  • Train your accounts team: Ensure they understand verification, deduction calculations, and return filing
  • Consider software: Payroll or construction management software can automate CIS compliance

You do not need to register until you exceed the threshold, but being prepared avoids a scramble when you do.

What if I have already exceeded the threshold without registering?

If you realise you should have registered as a deemed contractor but did not:

  1. Register immediately: Do not delay further
  2. Contact HMRC: Voluntary disclosure typically results in lower penalties than waiting to be caught
  3. Calculate what you owe: You are liable for the tax that should have been deducted from subcontractor payments
  4. Pay what you owe: HMRC may allow a Time to Pay arrangement if you cannot pay immediately

Important: If you failed to make deductions, you cannot recover the tax from subcontractors after the event. You must pay it yourself. This can be a significant unexpected cost.

Penalties for non-compliance

Failing to register and operate CIS correctly can result in:

  • Liability for undeducted tax: You must pay HMRC the tax that should have been deducted from subcontractors
  • Late filing penalties: 100 pounds for the first month, increasing over time
  • Interest: On any tax paid late
  • Incorrect return penalties: If your returns contain errors

The tax liability alone can be significant. On 3 million pounds of construction payments at the standard 20% rate, the undeducted tax would be 600,000 pounds.

Construction & Property Requirement

Property developers and retail chains

These sectors commonly trigger deemed contractor status:

  • Property developers: Development projects typically exceed 3 million pounds. Register as a contractor from your first development if you expect significant construction spend.
  • Retail chains: Multiple store fit-outs in a year can aggregate to exceed the threshold. Track your total construction spend across all sites.
CIS guidance on GOV.UK (opens in a new tab)

Getting professional advice

Consider seeking advice from an accountant or tax adviser if:

  • You are unsure whether your activities count as construction operations
  • You have complex arrangements with multiple subcontractors
  • You need to calculate your liability for periods when you should have been registered
  • You want to set up compliant systems before exceeding the threshold

The cost of professional advice is typically much less than the penalties and tax liability for getting CIS wrong.

Official guidance

Related guides

  • Register as a CIS contractor - detailed registration process
  • Verify a subcontractor's CIS status - how to use the verification service
  • Submit your CIS monthly return - filing your CIS300 return
  • Calculate CIS deductions - working out the correct deduction amount
  • VAT reverse charge for construction - how CIS interacts with VAT