How to Manage Subcontractors as a UK Tradesperson
Most trade businesses reach a point where one pair of hands isn’t enough. You’ve got more work than you can handle alone, so you bring in another tradesperson to help. It seems straightforward – until HMRC gets involved. Using subcontractors in the UK construction industry comes with a specific set of legal obligations under the Construction Industry Scheme (CIS). Get it right and it’s a perfectly workable arrangement. Get it wrong and you’re looking at penalties, backdated deductions, and a very unpleasant conversation with HMRC.
First: Employee or Subcontractor?
Before anything else, be sure the person you’re bringing in actually qualifies as a subcontractor. HMRC takes this distinction seriously and the penalties for misclassifying someone – paying them as a subcontractor when they should legally be an employee – can be significant.
A genuine subcontractor typically:
- Works for multiple different clients, not just you
- Invoices for their work rather than receiving a regular wage
- Controls how and when they do the work
- Uses their own tools and equipment
- Can send someone else to do the work in their place
- Doesn’t get paid holiday or sick leave from you
If the arrangement looks more like employment – same hours every week, working exclusively for you, using your equipment, under your direct supervision – HMRC may treat them as an employee regardless of what the paperwork says. Use HMRC’s free CEST tool (Check Employment Status for Tax) on GOV.UK before you start paying anyone you’re unsure about.
What Is CIS and Does It Apply to You?
The Construction Industry Scheme (CIS) is HMRC’s tax system for the construction industry. It requires contractors to deduct tax from payments to subcontractors and pass that money to HMRC as an advance payment towards the subcontractor’s tax bill. CIS applies to most construction work: building, repairs, demolition, civil engineering, electrical installation, plumbing, decorating, and site preparation. You are a CIS contractor if you pay subcontractors for construction work – one subcontractor on one job and CIS rules apply.
4 Steps to Stay CIS Compliant
Register as a CIS contractor before you pay anyone
You must register with HMRC as a CIS contractor before making your first payment to a subcontractor – not after. Register online via GOV.UK using your Government Gateway ID. If you’re also doing construction work yourself for other contractors, you’ll need to register as both a contractor and a subcontractor. Operating as a CIS contractor without being registered is the kind of thing that surfaces during an HMRC investigation, and by that point penalties and backdated deductions can be substantial.
Verify your subcontractor with HMRC
Before making any payment, verify each subcontractor’s CIS registration status with HMRC – online via Government Gateway or through CIS-compatible software. HMRC will give you one of three deduction rates:
The deduction applies only to labour, not materials. If a subcontractor charges £2,000 for labour and £500 for materials, you deduct from the £2,000 only. Once verified, you don’t need to re-verify each time unless HMRC notifies you of a change.
Make the deduction and issue a payment statement
When you pay your subcontractor, deduct the correct amount from the labour element and pay it to HMRC. The subcontractor receives the remainder – they can offset those deductions against their annual tax bill, so it’s not money lost, just paid earlier. You must also provide the subcontractor with a payment and deduction statement within 14 days of the end of each tax month. This is their proof for reclaiming any overpayment at year end. Failing to issue these statements on time is a compliance breach that HMRC penalises.
Submit monthly CIS returns to HMRC
Every month, submit a CIS return showing all payments made to subcontractors that month – the gross amount, cost of materials, and amount deducted. If you made no payments, submit a nil return. The deadline is the 19th of the following month. Penalties start at £100 for one day late, rising to £200 after two months and £300 after three months. From April 2026, CIS is being incorporated into Making Tax Digital for Income Tax, requiring quarterly digital reports rather than monthly returns – if you’re not already using CIS-compatible software, now is the time.
Use a Written Subcontractor Agreement
CIS covers the tax side – but it doesn’t protect you if a subcontractor does poor work, causes damage on site, or walks off a job halfway through. A simple written agreement covering the key terms takes 15 minutes to set up and protects you significantly:
- Description of the work and the site address
- Agreed price and what’s included (labour only, or labour and materials)
- Start date and expected completion
- Payment terms and how CIS deductions will be handled
- Who is responsible for their own public liability insurance
- What happens if the work isn’t completed to standard
Always ask to see a subcontractor’s public liability insurance certificate before they start work. If something goes wrong on site, you need to know they’re covered.
Managing the Practical Side
Beyond the tax obligations, the real challenge with subcontractors is keeping jobs on track when you’re not physically on site with them. A subcontractor who goes quiet, misses a deadline, or does work that doesn’t meet your standard reflects on your business, not theirs. The tradespeople who manage subcontractors well consistently do a few things:
- Brief the subcontractor properly before the job starts – not just what to do but what standard is expected
- Check in at key stages rather than only at completion
- Keep all job details, notes, and communications in one place so nothing gets lost in WhatsApp threads
- Invoice the end customer only once the work has been checked and signed off
Job management software makes this significantly easier when you’re coordinating multiple people across multiple sites. Tradify lets you assign jobs, track progress, attach notes and photos, and manage quotes and invoices – all from your phone.
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Before and during each job
- Registered as a CIS contractor with HMRC before first payment
- Subcontractor verified with HMRC – correct deduction rate confirmed
- Deduction applied to labour element only (not materials)
- Payment and deduction statement issued within 14 days of tax month end
- Monthly CIS return submitted to HMRC by the 19th
- Written subcontractor agreement in place
- Subcontractor’s public liability insurance certificate obtained
- CIS-compatible software in use ahead of MTD changes from April 2026
Frequently Asked Questions
CIS (Construction Industry Scheme) is HMRC’s tax system for the construction industry. It requires contractors to deduct tax from payments to subcontractors and pass it to HMRC as an advance payment towards the subcontractor’s tax bill. It applies to most construction work – building, repairs, electrical installation, plumbing, decorating, site preparation, and more. You are a contractor under CIS the moment you pay a subcontractor for construction work – regardless of the size of your business or how often you use subcontractors. One subcontractor, one job, and the rules apply.
The deduction rate depends on the subcontractor’s HMRC verification status: gross payment status = deduct nothing; standard rate = deduct 20%; not registered = deduct 30%. Crucially, the deduction applies only to the labour element of the payment – not materials. If a subcontractor charges £2,000 labour and £500 materials, you deduct only from the £2,000. Verify each subcontractor with HMRC before their first payment to get the correct rate – you do this online via Government Gateway or through CIS-compatible software.
Yes – you must register as a CIS contractor with HMRC before making your first payment to a subcontractor. Register online at GOV.UK using your Government Gateway ID. There is no minimum business size or payment frequency that creates an exemption – the obligation starts with your first subcontractor payment. Operating without being registered risks penalties and backdated deductions when HMRC identifies the arrangement during an investigation.
Monthly – by the 19th of the month following the payment month. The return shows all payments made to subcontractors that month: gross amount, materials cost, and amount deducted. If you made no payments that month, you still need to submit a nil return. Penalties start at £100 for one day late, rising to £200 after two months and £300 after three months. Note: from April 2026, CIS is being incorporated into Making Tax Digital, moving to quarterly digital reporting – start using CIS-compatible software now to be ready.
Yes – genuine independent subcontractors are responsible for their own public liability insurance. Always ask to see their certificate before they start work on any job. If something goes wrong on site – damage to a customer’s property, an injury to a third party – you need to know whether your subcontractor is covered. A subcontractor without insurance who causes damage on your job can create a claim situation that lands on you. Make it a standard requirement: no insurance certificate, no start date.
This guide provides general information and is not legal or tax advice. Always check GOV.UK or speak to a qualified accountant for advice specific to your business. Some links on this page are affiliate links; if you sign up through them we may earn a commission at no extra cost to you.