Mainstream contractors, and the £3m rolling test
A mainstream contractor is any person carrying on a business which includes
construction operations. CIS 340 expressly captures property developers, speculative builders,
gang leaders who organise construction labour, and foreign businesses carrying out UK
construction operations. If construction is part of what you do, you are in.
A deemed contractor is a person carrying on a business that is not itself
construction, who becomes a contractor because expenditure on construction operations exceeded
£3,000,000 in the period of one year ending with that time. That is a rolling twelve-month test,
not an annual average, and it has applied in that form since 6 April 2021. Section 59 also
contains election provisions allowing a body to elect that the £3m condition ceases or continues
to apply.
And most trade businesses of any size are both at once — a subcontractor on money in, a
contractor on money out, with both sets of duties running simultaneously.
The four things you must do
- Verify with HMRC before the first payment. Not needed if you last
included that subcontractor on a return in the current tax year or either of the two before
it. Keep the reference, including any letter suffix.
- Deduct at the right rate, from the right base. The materials figure is
your responsibility, not the subcontractor's — see below.
- Return by the 19th, every month, including a nil return or a notification
of inactivity where you paid nobody. That obligation came back for mainstream contractors on
6 April 2026.
- Pay the deductions to HMRC by the 22nd electronically, or the 19th by
post. Statements to subcontractors go out inside the same 14 days as the return.
Deductions must only be made from the part of the payment that does not represent the cost of
materials the subcontractor directly incurred. Where a materials figure looks overstated, HMRC's
instruction is that you ask the subcontractor for satisfactory cost information — and if it is
withheld, or if it looks inflated, that you make a reasonable estimate of the cost of materials
yourself. The responsibility for that figure being reasonable rests with the contractor.
In practice that means an invoice that simply says "materials £4,000" is not something to key
in and forget. It is something to ask about.
Payments that are outside the scheme
From 6 April 2026 a new regulation 24ZA exempts payments to local authorities and public
bodies from CIS — they are treated as holding gross payment status. Separately, from 6 April 2024
most landlord-to-tenant payments came out of scope. And CIS 340 treats a number of things as
outside the scheme entirely: running a canteen or hostel or providing site facilities; medical,
safety or security services; routine cleaning of existing commercial or industrial premises; and
reverse premiums or landlord inducements.
The exposure that is not about CIS at all
Registering somebody for CIS, verifying them and deducting 20% does nothing whatsoever to
establish that they are self-employed. A labour-only subcontractor supplied with all materials
and plant, working set hours under direction, on one site, for one contractor, with no right of
substitution and no financial risk, is very likely an employee at common law. The deduction you
have been making is a fraction of the PAYE, employee National Insurance and 15% employer
National Insurance that would have been due, and the exposure is yours.
Long subcontract chains multiply it, and since 6 April 2026 the umbrella company rules push
PAYE responsibility up the chain: where labour is supplied through an umbrella company
the agency becomes responsible for PAYE and Class 1 National Insurance, and where there is no
agency, the end client does. HMRC can recover underpayments from them. Anyone sourcing labour
through agencies or umbrellas now carries recoverable PAYE risk.
