CISR12055 - The Scheme: contractors: applying the statutory test for ‘deemed’ contractor” status
Source: gov.uk (2025-12-09)


Section 59(1)(l) Finance Act 2004

Where a business is not already a mainstream contractor via the provisions at section 59(1)(a) Finance Act 2004 (see CISR12040 (http://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr12040)), then that business may instead be a “deemed contractor” if it satisfies the construction expenditure threshold tests contained within FA04 S59(1)(l). This page concentrates on applying that test.

A ‘deemed contractor’ is any business who at a given point in time, satisfies the condition in FA04/S59(1)(l) that in the period of one year ending with that time, the person’s expenditure on construction operations exceeds £3 million'

In applying this test, the business must at any time on a rolling basis (for example – day-to-day, month-to-month) calculate all of the construction expenditure it has incurred over a 12-month period. This should include all expenditure on construction operations, including exempt payments under SI2005/2045 Part 4. If the total expenditure over those 12-months is over £3 million, then that business becomes a deemed contractor from that date and must operate the scheme on any non-exempt payments.

Exempt payments for deemed contractors may include:
- payments in respect of property used for the purposes of the business - see CISR15140 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr15140) and CISR17235 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr17235)
- small payments (under £1000, exclusive of VAT) - see CISR15150 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr15150)
- reverse premiums - see CISR14040 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14040) and CISR14045 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14045)
- some payments from landlord to tenant – see CISR14047 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14047) and CISR14048 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14048)
When assessing the deemed contractor threshold, HMRC looks at the person's expenditure on construction operations included in any contracts. For these purposes, the term 'expenditure' means expenditure excluding VAT, that is before the application of VAT. For example, if the contract price is £1 million + VAT the expenditure figure to be taken into account for the purpose of the test is £1 million.

In addition, ‘expenditure’ for these purposes does not include the cost of materials or non-construction expenditure included in a construction contract, for example, non-construction work in mixed contracts. However, once a business becomes a deemed contractor, all payments under the construction contract have to be reported under the scheme. For more information, please see CISR14030 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr14030).

If the threshold is reached but all payments are exempt, there is no obligation for the deemed contractor to register for the CIS and report these payments. However, if a deemed contractor were to make payments that are not exempt, then they must register and operate the scheme for the non-exempt payments.

Deemed contractors must ensure they comply with their CIS obligations. Once they meet the deemed contractor threshold, they should regularly review whether they make any payments which would require reporting under the CIS.

If a business is already registered as a contractor and expects all future payments to be exempt, please see guidance at CISR15140 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr15140) and then CISR12060 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr12060).

Example

Company A's business does not include construction operations and is therefore not a mainstream contractor. Over recent months it has incurred construction expenditure when engaging 3rd parties to undertake construction work, company A must now review any construction payments to see if it reaches the £3 million qualifying construction spend threshold within the previous 12-month period; if it does, then company A becomes a deemed contractor.

Company A monitors its construction payments over the previous 12 month period spanning 06/01/2023 to 05/01/2024, which are as follows:

December 2023 indicates the cumulative total spend on construction is nearing the £3 million threshold and it would be prudent for company A to begin the registration process at this point if further construction is to be undertaken. All expenditure on construction operations should be included in this calculation, regardless of whether it qualifies for any of the exemptions.

The deemed contractor threshold was exceeded when the January 2024 payment was made. From this date company A becomes a deemed contractor and is required to operate the scheme on any subsequent contract payments.

Registering as a contractor within the CIS is advised as early as possible so that company A can comply with their CIS obligations. To register as a contractor, you will need to follow the process at www.gov.uk/register-employer (https://www.gov.uk/register-employer).

Similarly, a business may de-register from CIS if their construction spend falls below the £3 million threshold in the previous rolling 12-month period and no further construction by the business is expected to be undertaken which would exceed the £3 million threshold. If you wish to de-register from the CIS you will need to contact the CIS Helpline on xx-xxxx-xxxx.

For information on deregistering from the scheme, please see CISR12060 (https://www.gov.uk/hmrc-internal-manuals/construction-industry-scheme-reform/cisr12060).

If construction work should decrease or cease for short periods of time HMRC recommends that businesses do not de-register from CIS but use the facility to have a temporary period of inactivity applied.