Contractors vs Subcontractors

Key facts

A contractor is anyone who pays subcontractors for construction work — not just main contractors or builders.
A subcontractor is an individual, partnership, or company that carries out construction work for a contractor.
A business can be both a contractor and a subcontractor at the same time.
Contractors must register for CIS, verify subcontractors, make deductions, and file monthly returns.
Subcontractors are not required to register, but unregistered subcontractors face a 30% deduction rate instead of 20%.

Who Is a Contractor Under CIS?

A contractor under CIS is any business or organisation that pays subcontractors for construction work. The term “contractor” in CIS has a broader meaning than in everyday language — it is not limited to main contractors on building sites.^[1]

You are a CIS contractor if you are:

A construction company that subcontracts work to other firms or individuals
A property developer who hires builders, plumbers, electricians, or other tradespeople
A labour agency supplying construction workers
A government department or local authority paying for construction services
A non-construction business spending over £3 million per year on construction (“deemed contractor”)

Key point: You are a CIS contractor based on what you pay for, not what your main business does. A retail chain refitting its shops, or a charity building new premises, can be a CIS contractor if the annual construction spending threshold is met.

Contractor Obligations

CIS contractors have significant responsibilities under the scheme:^[1]

Obligation	What It Involves	Deadline
Register with HMRC	Register as a CIS contractor before the first payment to any subcontractor	Before first subcontractor payment
Verify subcontractors	Check each subcontractor’s CIS status with HMRC to determine the correct deduction rate	Before first payment under each contract
Make deductions	Deduct tax at the correct rate (0%, 20%, or 30%) from the labour element of payments	At the time of each payment
Issue statements	Provide a written payment and deduction statement to each subcontractor	With or shortly after each payment
File monthly returns	Submit CIS300 return detailing all payments and deductions	19th of the following month
Pay HMRC	Send total deductions to HMRC	19th (post) or 22nd (electronic) of following month
Keep records	Retain records of verifications, payments, and deductions	3 years after end of tax year

Who Is a Subcontractor Under CIS?

A subcontractor is an individual, partnership, or limited company that carries out construction work for a contractor. Subcontractors can range from sole-trader plumbers and electricians to large specialist firms.^[2]

You are a CIS subcontractor if:

You carry out construction operations for a CIS contractor
You are not employed by the contractor (i.e. you are self-employed or a company)
You provide labour, or labour and materials, for construction work

Subcontractor Obligations

Subcontractors have fewer CIS-specific obligations, but they are still important:^[2]

Obligation	What It Involves	Notes
Register with CIS (optional but strongly recommended)	Register with HMRC to receive the 20% rate instead of 30%	Registration is free; no reason not to register
Provide details for verification	Give the contractor your name, UTR, and NI number (or company registration number)	Must match HMRC records exactly
Keep payment statements	Retain all payment and deduction statements received from contractors	Needed to reclaim CIS deductions
File Self Assessment (or CT return)	Report CIS income and claim credit for deductions suffered	31 January following the end of the tax year
Keep records	Invoices, bank statements, expense receipts, and CIS statements	5 years after the SA filing deadline

Tip: Always keep your payment and deduction statements safe. Without them, it can be difficult to prove how much CIS tax has been deducted from your income — and you may not be able to reclaim what you are owed.

Being Both Contractor and Subcontractor

Many construction businesses occupy both roles simultaneously. For example:

A building firm is subcontracted by a developer (subcontractor role) and then hires a specialist plasterer (contractor role)
An electrical company works under a main contractor on a housing development (subcontractor role) and subcontracts cabling to another firm (contractor role)

If you are in a dual role, you must fulfil both sets of obligations. You will have CIS deductions taken from your payments by the contractor above you, and you must make deductions from payments to your own subcontractors.

Labour Agencies Under CIS

Labour agencies that supply workers for construction operations are treated as contractors under CIS. The agency must:^[3]

Register as a CIS contractor
Verify the workers it supplies
Make CIS deductions from payments to those workers (unless they are employees of the agency, in which case PAYE applies)

The distinction between an agency worker being self-employed (CIS applies) or employed by the agency (PAYE applies) is critical. Agencies must assess employment status carefully.

When CIS Does Not Apply

CIS does not apply in all situations involving construction work:^[3]

Employees — if the worker is employed, use PAYE instead of CIS
Private householders — homeowners hiring a builder for personal property work are not CIS contractors
Non-construction work — professional services like architecture, surveying, or site security are outside CIS
Materials-only supply — delivering or selling materials without providing any labour is outside CIS

Private householders: If you hire a builder to work on your own home, CIS does not apply. The builder may still be a CIS subcontractor when working for a CIS contractor on other projects, but you as a private individual have no CIS obligations.

Frequently Asked Questions

What makes someone a contractor under CIS?

You are a CIS contractor if you pay subcontractors for construction work. This includes construction companies, property developers, labour agencies supplying construction workers, and even non-construction businesses that spend more than £3 million a year on construction (deemed contractors).

What makes someone a subcontractor under CIS?

You are a CIS subcontractor if you carry out construction work for a contractor. You can be a sole trader, a partner in a partnership, or a limited company. The key factor is that you are providing construction labour (and possibly materials) to another business rather than directly to a private homeowner.

Can I be both a contractor and subcontractor?

Yes. Many construction businesses work as a subcontractor to a larger firm while also subcontracting specialist work themselves. In this case, you must meet both sets of CIS obligations — making deductions from your own subcontractors while having deductions taken from your payments by the contractor above you.

Do I need to register as a contractor if I only use one subcontractor?

Yes. There is no minimum number of subcontractors. If you pay even one subcontractor for construction work, you must register as a CIS contractor with HMRC before making that first payment.

Sources

What you must do as a CIS contractor — GOV.UK
What you must do as a CIS subcontractor — GOV.UK
Construction Industry Scheme (CIS) — GOV.UK
CIS: contractor’s responsibilities — HMRC