What is a deemed contractor under CIS?

A deemed contractor is a business or public body outside construction that spent more than £3 million on construction in 12 months. Under the test in force since April 2021, it must then run CIS on payments within the scheme.

Most of the Construction Industry Scheme (CIS) is about builders paying trades. Deemed contractors are the other group: clients whose main business is not construction but who buy so much of it that the scheme catches them. The test is in section 59(1)(l) of the Finance Act 2004, in the form substituted by the Finance Act 2021 from 6 April 2021. It is met by a business whose spending on construction operations "in the period of one year ending with that time" exceeds £3,000,000.

Who can be a deemed contractor

GOV.UK's current wording is that you count as a deemed contractor "if your business does not do construction work but you have spent more than £3 million on construction in the 12 months since you made your first payment". The law and HMRC's manual use a rolling 12-month period instead, explained below. HMRC's CIS 340 guide and its manual give examples:

Public bodies are listed in section 59(1), and section 59(2) applies the same £3 million test to them.

How the £3 million test works

HMRC's manual, CISR12055, says the business must add up its construction spending over 12 months on a rolling basis, day to day or month to month. The total:

• excludes VAT, so a £1 million plus VAT contract counts as £1 million
• excludes the cost of materials and any non-construction work in a mixed contract
• includes payments that are exempt from CIS, such as work on the business's own premises

The business becomes a deemed contractor on the day the total goes over £3 million. Here is a hotel group with no construction spend before April 2026, with each figure excluding VAT and materials:

The group crosses £3 million with the September payment and must operate CIS on any payments within the scheme after that.

What this means for you

If you are a sole trader who pays other trades, you are not a deemed contractor. You are a mainstream contractor from the first payment, because your business includes construction. Deemed status matters to you as a subcontractor, when you work directly for a client outside construction.

Two things follow. First, a large client may verify you and deduct 20% or 30% even though it is not a builder. Second, the same client may pay you gross on another job. CIS 340 says a deemed contractor that is a business need not apply CIS to work on property used for its own business, such as its offices, warehouses or nursing homes. It must apply CIS to work on property it lets to others, sells or holds as an investment. HMRC can also agree, if the client asks, that it need not apply CIS to contracts under £1,000, excluding VAT and materials. HMRC's manual says the own-premises exemption does not cover public bodies, so a council or NHS trust over the threshold cannot use it.

A property investor can also stop being deemed and become mainstream. CIS 340 says that if it builds a new property or redevelops one so its use changes, that activity makes it a mainstream contractor straight away.

When deemed status ends

CIS 340 says a deemed contractor stays one until it can satisfy HMRC that its construction spend in the previous 12 months was less than £3 million. HMRC's manual adds that it can then de-register, by calling the CIS helpline, if it does not expect to reach the threshold again. Section 59(3) also lets it elect to be treated as no longer meeting the test if it expects no further construction spending at all.

Steps to take with a client outside construction

1. Ask the client at the start whether it will pay you under CIS.
2. If it will, give your legal name, UTR and National Insurance number exactly as registered, so it can verify you at 20% rather than 30%.
3. Expect a payment and deduction statement for each tax month it deducts from you.
4. Keep these with your other statements, because the deductions go on your tax return.
5. If it pays you gross, record the income in full and put money aside for the tax.

Read what work is covered by CIS for the types of job inside the scheme. Use the free MTD check to see whether Making Tax Digital applies to you from April 2027, and the trades section has more on CIS.