Property & Construction

Does your business perform “construction operations”?

The term “construction operations” is used in the legislation to determine whether certain procedures need to be applied, including the Construction Industry Scheme and the domestic VAT reverse charge.

Businesses that work in the construction industry need to apply these procedures whenever they engage in these operations, but even businesses outside the construction industry need to be aware, as if they spend £1m on operations per year for three years or more as they become deemed contractors in the construction industry.

However, sometimes it is not clear if a service would be considered a construction operation or not. This article aims to highlight some key examples of what is and isn’t a construction operation.

7th December 2021

Cutting through the complexity

HMRC’s legislation states that construction operations includes “Constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services.”

This also includes “works forming part of the land”.

Although temporary structure are still construction operations, if the structure lasts for less than two months, it is specifically excluded.

It also includes “installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure

Which does not include burglar alarms, fire extinguishers or CCTV, but does include traffic management CCTV.

It also does not include repairs of these specific systems, but repairs of the building or structure are included.

Also included is “painting or decorating the internal or external surfaces of any building or structure”.

However wholly artistic works such as a mural, with no building function at all, are not included.

Generally professional work is excluded but architects and surveyors who start taking on role of project manager are. If you work in this field you should discuss gross registering just in case if you are eligible.

Works to finish a building project – such as landscaping and cleaning – also fall under construction operations, even if these would normally be excluded. Even after construction has finished, these still count as construction operations until the property is sold.

If you are not supplying labour, (i.e. just producing materials), generally this is excluded, but if you drive materials around on site, this could be caught.

This also applies to plant – if you hire someone to operate a digger that is construction operations but hire of a skip would not be for example.

There are some nuances – if a property investor buys a run-down building and does it up to let it out, is that construction operations? If it is “substantial”, then yes, definitely, and the purchaser would actually be considered a property developer. If it is general repairs, this is still construction work, but the thresholds for deemed contractors would apply.

There are many specifics – as well as many grey areas – in the legislation, and so if you are in any doubt, please have a discussion with your accountant or adviser.