HMRC have clarified their position after updated guidance raised uncertainty over construction funding arrangements.
HMRC have clarified that there has been no change in policy regarding the application of the Construction Industry Scheme (CIS) to development finance arrangements, following industry concern over recent revisions to the CIS guidance.
Updated guidance published on 5 May in HMRC’s Construction Industry Scheme Reform Manual (CISR14020) was intended to provide additional clarity on when contracts fall within the scope of the CIS. However, references in the revised guidance to contracts that ‘fund construction operations’ prompted concern among some advisers and industry bodies that the wording could be interpreted as extending the regime to certain financing arrangements.
That would have represented a major change, imposing significant administrative burdens in the way of lending for construction and seemingly running counter to the UK government’s stated objective of increasing the pace of development.
Although the definition of ‘contractor’ for CIS purposes is broad and can apply beyond traditional construction businesses, pure lending arrangements have generally been regarded as falling outside the scope of the regime.
The issue attracted particular attention because of the substantial compliance obligations imposed on businesses within the CIS. Contractors must register with HMRC, verify subcontractors’ payment status, operate withholding obligations where required, submit monthly CIS returns and maintain detailed compliance records. Businesses that fail to apply the rules correctly may also face interest and penalties.
Concerns have also been heightened by the introduction of new anti-fraud measures from April 2026. These provisions can impose liability where a contractor knew, or should have known, that it was connected with CIS fraud involving subcontractors. Had mainstream lending arrangements been brought within scope, lenders could potentially have faced significantly expanded compliance and due diligence obligations.
However, HMRC have now confirmed that no such policy change was intended.
In comments shared by the CIOT, HMRC said the recent amendments to the guidance were introduced primarily to address questions arising in the insurance sector concerning insurance companies, claims handling companies and loss adjusters.
HMRC stated: ‘Pure financing arrangements (including lending and grant funding) fall outside the scope of CIS, unless they amount in substance to the procurement of construction operations by the funder.’
HMRC also indicated that they are considering updates to the guidance to make the position clearer.
Similar concerns had been raised within the real estate sector. It is understood that stakeholders had received confirmation from HMRC’s CIS policy team there had been no change of approach regarding development finance arrangements, although HMRC was keen to understand the circumstances in which particular arrangements were reportedly being challenged.
The episode nevertheless illustrates the degree of uncertainty that relatively small changes in HMRC guidance can create in areas such as CIS, where the compliance burdens and associated risks are significant.
Home >Articles > HMRC clarify CIS financing positions
HMRC clarify CIS financing positions
HMRC have clarified their position after updated guidance raised uncertainty over construction funding arrangements.
HMRC have clarified that there has been no change in policy regarding the application of the Construction Industry Scheme (CIS) to development finance arrangements, following industry concern over recent revisions to the CIS guidance.
Updated guidance published on 5 May in HMRC’s Construction Industry Scheme Reform Manual (CISR14020) was intended to provide additional clarity on when contracts fall within the scope of the CIS. However, references in the revised guidance to contracts that ‘fund construction operations’ prompted concern among some advisers and industry bodies that the wording could be interpreted as extending the regime to certain financing arrangements.
That would have represented a major change, imposing significant administrative burdens in the way of lending for construction and seemingly running counter to the UK government’s stated objective of increasing the pace of development.
Although the definition of ‘contractor’ for CIS purposes is broad and can apply beyond traditional construction businesses, pure lending arrangements have generally been regarded as falling outside the scope of the regime.
The issue attracted particular attention because of the substantial compliance obligations imposed on businesses within the CIS. Contractors must register with HMRC, verify subcontractors’ payment status, operate withholding obligations where required, submit monthly CIS returns and maintain detailed compliance records. Businesses that fail to apply the rules correctly may also face interest and penalties.
Concerns have also been heightened by the introduction of new anti-fraud measures from April 2026. These provisions can impose liability where a contractor knew, or should have known, that it was connected with CIS fraud involving subcontractors. Had mainstream lending arrangements been brought within scope, lenders could potentially have faced significantly expanded compliance and due diligence obligations.
However, HMRC have now confirmed that no such policy change was intended.
In comments shared by the CIOT, HMRC said the recent amendments to the guidance were introduced primarily to address questions arising in the insurance sector concerning insurance companies, claims handling companies and loss adjusters.
HMRC stated: ‘Pure financing arrangements (including lending and grant funding) fall outside the scope of CIS, unless they amount in substance to the procurement of construction operations by the funder.’
HMRC also indicated that they are considering updates to the guidance to make the position clearer.
Similar concerns had been raised within the real estate sector. It is understood that stakeholders had received confirmation from HMRC’s CIS policy team there had been no change of approach regarding development finance arrangements, although HMRC was keen to understand the circumstances in which particular arrangements were reportedly being challenged.
The episode nevertheless illustrates the degree of uncertainty that relatively small changes in HMRC guidance can create in areas such as CIS, where the compliance burdens and associated risks are significant.
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