A subcontractor on money in, a contractor on money out
The thing that makes a builder's CIS position heavier than a single-trade business is that
both sets of duties run simultaneously. On the payments you receive from a main contractor you
are a subcontractor: you suffer a deduction unless you hold gross payment status. On the
payments you make to your own labour you are a contractor: you must verify before the first
payment, deduct at the right rate from the right base, file a return by the 19th, issue
statements in the same fourteen days, and pay the deductions over by the 22nd.
Neither set of duties reduces the other. What they do interact on is cash: the CIS you deduct
from your own subcontractors is one of the four things a company can offset its own suffered
deductions against, alongside PAYE, National Insurance and student loan repayments.
What is inside the scheme
Almost everything a builder or groundworks contractor does. Construction, alteration, repair,
extension, demolition and dismantling of buildings or structures — whether permanent or
not. Works to the land: roads, power lines, drainage, water mains, wells, sewers, coast
protection. And the operations that are integral to, preparatory to, or for rendering complete
the works: site clearance, earth-moving, excavation, tunnelling and boring, foundations,
scaffolding, site restoration, landscaping, and roadways and access works.
CIS 340 additionally confirms as in scope the assembly of prefabricated units on site,
building alterations to accommodate lifts, hoists and conveyors, fence and concrete post
installation, asbestos removal, land draining, and the provision of labour for construction
operations.
What is out: mineral extraction and the underground works for it; the manufacture of building
or engineering components, materials, plant or machinery, and their delivery to site; and the
professional work of architects, surveyors, or consultants in building, engineering or
landscaping.
Why the split matters twiceWhether a job is a construction operation decides two things at once, not one. It decides whether the payment is inside CIS — and because the VAT domestic reverse charge takes its scope from the CIS definition, it decides the VAT treatment on the same invoice. Get the scope question wrong and you get both wrong together.
The £3 million rolling test
Deemed contractors
A business that is not itself construction becomes a contractor where expenditure on
construction operations exceeds £3,000,000 in the period of one year ending with that
time. It is a rolling twelve-month test, not an annual average, and
it has applied in that form since 6 April 2021. A developer, or a business running a large
fit-out programme, can cross it without ever having thought of itself as a contractor.
The VAT rate is decided by what the building is, not what the work is
Constructing a building designed as a dwelling is zero-rated, in the course of construction and
before completion, by a person with "person constructing" status. Four conditions have to hold
for "designed as a dwelling": self-contained living accommodation; no direct internal access to
any other dwelling; construction in accordance with statutory planning consent; and no
prohibition on separate use or disposal.
That last one is the trap. An annexe that cannot be sold or let separately fails it and is
standard rated. Materials supplied with zero-rated or reduced-rated work take the same rate as
the services — but the builders' block keeps fitted furniture, carpets and separately hired plant
or scaffolding standard rated regardless.
Conversions get 5% where the number of single household dwellings changes, where premises never
previously used residentially (or not for ten years or more) are converted, or where a dwelling
empty for two years or more is renovated. Everything else on an existing occupied dwelling —
including extensions — is 20%.
