CISR15140 - The Scheme: payments: expenditure by certain businesses on their own property - 'own-build'
Source: gov.uk (2025-12-09)


What ‘Deemed’ contractor payments are exempted by Reg 22?

Under SI2005/2045 Reg 22, businesses brought into the Scheme because they spend an average of more than £3 million on construction operations do not need to apply the Scheme to expenditure that relates to property used for the purposes of the business itself, or, if the business is a company
- other companies within the same group
- any company of which 50% or more of the shares are owned by the company
The types of properties covered by this exemption may include
- offices
- warehouses
- nursing homes
- leased property used by the business’s group, including property leased by one company to another within the same group
- any other facilities used for the business.
Property is not used for the purposes of the business if it is for sale or let (unless purely incidental to the business) or held as an investment.

Any incidental use of the property by third parties, such as auditors, project team members who are not employees and security staff, will not affect the exemption. Please see CISR17230 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr17230) for more information.

You should also note particularly that SI2005/2045 Reg 22 applies to ‘businesses’ as specifically described at FA04/s59(1)(l). This regulation does not apply to mainstream contractors or, public bodies and local authorities.

It is important to note that it is the payment that is exempted by SI2005/2045 Reg 22. It does not exempt the business itself, nor does it exempt the construction contract.

Examples of payments made by Deemed Contractor businesses for construction operations, that are exempted under SI2005/2045 Reg 22.
- 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.
- 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 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.
The meaning of ‘Incidental’ for Reg 22 purposes

For something to be incidental to something else, it must be in connection with or as a result of that thing. For the purposes of Reg 22, anything incidental must be directly connected to or in consequence of carrying on the business. Therefore, in determining incidental use, sale or letting of a property, it is not appropriate to apply a quantitative test, such as comparisons of the total turnover to rental income or the total property area to the area let.

If a business lets or is selling the property, for a purpose which is separate and distinct from carrying on their business, this will not be incidental, and Reg 22 will not apply.

Also, if the property is used by a third party for a purpose that is not connected to the deemed contractor’s business, then this is not incidental, and Reg 22 will not apply.

Please see CISR17235 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr17235) for examples of incidental use of property.

What ‘Deemed’ contractor payments are not exempted by Reg 22?

SI2005/2045 Reg 22 allows ‘deemed’ contractors to exempt construction payments but only ‘in respect of construction operations relating to property used for the purposes of the business of that person.’ This regulation also goes on to state that ‘the property is not used for the purposes of the business of a person if it is for sale or let’ (except where purely incidental), ‘or is held as an investment by that person’.

If a property is used for the purposes of the business, any incidental use of the property by any other person can be disregarded. So, where the use of the property by a third person is not incidental to the purposes of the business Reg 22 will not apply.

The scheme must therefore be applied to expenditure for construction work on any of the following types of property:
- property that is not used for the purposes of the business, such as where it is let for commercial purposes to a third party
- property that is for sale or to let (except where that use is purely incidental to the business)
- property that is held as an investment
- property that is used by a third party (except where the use is incidental)
(Please see CISR17235 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr17235) for examples)

Where a subcontractor is engaged by a ‘Deemed’ contractor business who is entitled to exempt payments to that subcontractor under SI2005/2045 Reg 22, the exemption does not continue to apply further along any contractual chain. If the subcontractor to the Deemed contractor engages another subcontractor, they will become a contractor under FA04/S57(2)-(b)(i) and CIS must apply. Most contractors in the CIS are contractors under this legislative subsection by virtue of this contractual arrangement.

Examples of payments made by Deemed Contractor businesses for construction operations not exempted under Reg 2
- 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. As part of this building is let, the property is not used for the purposes of the business.
- A utilities company carries out construction works on public land to access their own cables. The land may be used by others and that use is not connected to the utility 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 property is not used for the purpose of the business and the contract payment to the subcontractor falls within the CIS.
- 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. “The payments for construction operations made by the insurance company do not relate to property used for the purposes of their business. Therefore, contract payments made by the insurance company to the subcontractor fall within the CIS.”
(Note; where the insurance company has expenditure on construction operations to property it uses for the purpose of its own business, the refurbishment of its head office building for example, or its own call centres, then these payments may be exempted under Reg 22).

Where a business has registered for the scheme and informs HMRC that all its payments for construction operations will fall within the terms of SI2005/2045 Reg 22, the contractor can be de-registered from the scheme. See CISR12060 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr12060) for more details.