CISR15140 - The Scheme: payments: expenditure by certain businesses on their own property - 'own-build'

Under SI2005/2045 reg 22, businesses brought into the Scheme because they spend an average of more than £1 million on construction operations each year 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 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.

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.

The Scheme must 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
• property that is held as an investment.

But note the Amending Regulations, SI2007/672 reg 6 which says “except where the sale or letting of that property is purely incidental to the business of that person”.

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, for example, public offices and local authorities.

Where a business brought into the Scheme by virtue of it spending an average of £1 million or more on construction operations informs HMRC that all its payments for construction operations will fall within the terms of SI2005/2045 reg 22, you may wish to consider whether the contractor should be de-registered informally from the Scheme. See CISR12060 for more details.