Regulation 22
Following discussions between HMRC and the industry, Ministers agreed to a small amendment to the wording of Regulation 22 of SI 2045/2005.
The text of the amendment and a revised version of Regulation 22 are set out below. The amendment qualifies the exception in Regulation 22 to allow businesses which might spend on property which is short-let or being prepared for sale, simply in the normal course of commercially managing their estate, to benefit from the exception. Regulations were laid in March 2007 to give effect to the amendment.
Two important points should be noted on the scope of Regulation 22. First, it only applies to businesses spending more than £1million a year on construction operations. It does not apply to other bodies which are 'deemed contractors' by virtue of Section 59(1)(b) to (k) of Finance Act 2004.
Second, it only applies to businesses which are brought within CIS because they spend more than an average of £1million on construction operations. It does not apply to those brought within CIS by Section 59(1)(a) Finance Act 2004 by virtue of being a business which includes construction operations, as defined in Section 74(2), Finance Act 2004.
Amendment to the Regulation
- In Regulation 22 (payments in respect of property used for business), in paragraph (2)(a) after 'let' insert '(except where the sale or letting of that property is purely incidental to the business of that person)'.
Revised text of Regulation 22
22. —(1) A payment under a construction contract is not a contract
payment if the payment is made by a person to whom section 59(1)(l) of the
Act applies in respect of construction operations relating to property used
for the purposes of the business of—
(a) that person, or
(b) another company in the same group or of another company of which that
company owns 50% or more of the shares.
(2) For the purpose of paragraph (1)—
(a) property is not used for the purposes of the business of a person if
it is for sale or to let (except where the sale or letting of that
property is purely incidental to the business of that person) or
is held as an investment by that person;
(b) in determining whether property is used for the purposes of the business of a person incidental use of that property by any other person is disregarded;
(c) section 413(3)(a) of ICTA applies to determine whether two companies are in the same group.
