Subcontractor costs

Yes

Payments to subcontractors for work on your jobs are fully deductible as a business expense. If you are in the Construction Industry Scheme (CIS), you must deduct the appropriate tax from payments to unregistered subcontractors and pay it to HMRC.

Key thresholds

CIS deduction rates: 20% for registered subcontractors, 30% for unregistered, 0% for gross payment status.

Common questions

Can I claim the cost of paying a subcontractor to help with a job?

Yes. Subcontractor payments are a business expense. If you are the contractor under CIS, you must also handle the CIS deduction.

Do I need to register for CIS if I use subcontractors?

If you pay subcontractors for construction work, you must register as a contractor under CIS before you take on your first subcontractor, verify each subcontractor with HMRC before paying them (the verification tells you which rate to deduct), file monthly CIS returns, and keep full records. Penalties apply for missing returns.

A registered subbie invoices £1,000 of labour. What actually happens?

You deduct 20 per cent, pay the subcontractor £800, send the £200 to HMRC, and give the subcontractor a payment and deduction statement. Your deductible business cost is the full £1,000; the £200 is their tax paid in advance, not money you keep.

Watch out for

Payments to genuine employees go through PAYE, not CIS. The distinction between employee and subcontractor is critical.
If HMRC reclassifies a subcontractor as an employee, you become liable for unpaid PAYE and National Insurance.
CIS deductions come off the labour element only, never off materials the subcontractor supplied or VAT.

Common mistakes

Deducting CIS from the whole invoice. The deduction applies to labour only, not materials or VAT.
Paying a new subcontractor without verifying them with HMRC first. Verification is what tells you the right rate; guessing risks under-deducting and a penalty.
Recording the net £800 as the cost. The full £1,000 is your expense; the £200 belongs to the subcontractor's tax record.

Cash basis vs traditional accounting

Subcontractor costs are a day-to-day expense on both methods. The deductible cost is the gross amount before the CIS deduction, on either basis.

CIS rules are complex. If you pay subcontractors regularly, take advice on registration and deduction obligations.

HMRC sources

https://www.gov.uk/what-is-the-construction-industry-scheme https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor https://www.gov.uk/what-you-must-do-as-a-cis-contractor

Last verified: August 2026 · Tax year 2026/27

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Self-employed tax, explained Self-employed tax calculator CIS tax refund calculator How to claim a CIS tax refund Reverse charge VAT for construction

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This guidance is for general information only. Tax rules change. Verify with HMRC or a qualified accountant before filing.

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