Who is a subcontractor under the construction industry scheme?
Answered 17 March 2026
Who is a Subcontractor Under the Construction Industry Scheme?
What the law says
The statutory definition of a sub-contractor is found in Finance Act 2004, section 58. A party to a contract relating to construction operations is a sub-contractor if, under the contract:
(a) he is under a duty to the contractor to carry out the operations, or to furnish his own labour (in the case of a company, the labour of employees or officers of the company) or the labour of others in the carrying out of the operations or to arrange for the labour of others to be furnished in the carrying out of the operations; or
(b) he is answerable to the contractor for the carrying out of the operations by others, whether under a contract or under other arrangements made or to be made by him.
This definition is confirmed in the Income Tax (Construction Industry Scheme) Regulations 2005, which state that "sub-contractor" has the meaning given in section 58 of the [Finance] Act.
Crucially, the contract must not be a contract of employment — the CIS only applies to persons engaged under contracts which do not amount to contracts of employment.
The relevant contract must be a "construction contract" as defined in FA 2004, s.57(2): a contract relating to construction operations (see s.74) which is not a contract of employment, where one party is a sub-contractor (s.58) and the other party (the contractor) is either itself a sub-contractor under another such contract or is a person to whom s.59 applies.
HMRC guidance / practice
HMRC's CIS guidance (CIS340) describes a subcontractor as "a business that carries out construction work for a contractor."
Key practical points from HMRC guidance:
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Employment status matters: The scheme does not apply to employees. For a contract to be within CIS, it must not be a contract of employment. Employment status depends on general law and it is for the contractor to decide on the individual's employment status when the subcontractor is first engaged. The fact that a subcontractor has worked in a self-employed capacity before is irrelevant — it is the terms of the particular engagement that matter.
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Registration is not proof of self-employment: Being registered as a CIS subcontractor is not proof of self-employed status.
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Dual role: Many businesses both pay and receive payments for construction work. When acting as a subcontractor, they must follow the rules for subcontractors; when acting as a contractor, they must follow the rules for contractors.
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Tax deductions: All payments made from contractors to subcontractors must take account of the subcontractor's tax status as determined by HMRC. This may require the contractor to make a deduction from the payment (excluding the cost of materials), which is then paid to HMRC — unless the subcontractor is registered for gross payment under FA 2004, s.63(2).
Citation sources
Part 3 Income tax, corporation tax and capital gains tax Chapter 3 Construction industry scheme Introduction Introduction 57 1 This Chapter provides for certain payments (see section 60) under construction contracts to be made under deduction of sums on account of tax (see sections 61 and 62). 2 In this Chapter “ construction contract ” means a contract relating to construction operations (see section 74) which is not a contract of employment but where— a one party to the contract is a sub-contr
ontractors for construction work must be handled by contractors in the construction industry and certain other businesses. Under the scheme, all payments made from contractors to subcontractors must take account of the subcontractor’s tax status, as determined by HMRC. This may require the contractor to make a deduction, which they then pay to HMRC, from that part of the payment that does not represent the cost of materials incurred by the subcontractor.” 31. Section 1.2 defines “contractor” as
ion 74) which is not a contract of employment but where— (a) one party to the contract is a sub-contractor (see section 58); and (b) another party to the contract (“the contractor”) either— (i) is a sub-contractor under another such contract relating to all or any of the construction operations, or (ii) is a person to whom section 59 applies. (3) In sections 60 and 61 “the contractor” has the meaning given by this section. 18. Section 58 is headed “Sub-contractors” and reads: “For the purposes o
The operation and existence of the Construction Industry Scheme (CIS) affects the computation of income chargeable to tax on subcontractors. It is a scheme solely concerned with how payments to subcontractors for construction work must be handled by contractors in the construction industry and certain other businesses. Only persons engaged under contracts which do not amount to contracts of employment fall within the CIS. Being registered as a CIS subcontractor is not proof of self-employed stat
PART 1 INTRODUCTION Citation and commencement 1 These Regulations may be cited as the Income Tax (Construction Industry Scheme) Regulations 2005 and shall come into force on such day as may be appointed by the Commissioners for Her Majesty’s Revenue and Customs by notice in the London, Edinburgh and Belfast Gazettes (“the appointed day”). Interpretation 2 In these Regulations— “ the Act ” means the Finance Act 2004; “approved method of electronic communications”, in relation to the delivery of i
The scope of the domestic reverse charge for building and construction services, as defined in SI 2019/892 art. 5-7, is based on that of the Construction Industry Scheme (CIS). The CIS is aimed at preventing evasion of direct taxes by subcontractors working in the industry and who are unknown to HMRC. The essence of the Scheme is that deductions are made at one of two prescribed rates from payments made to subcontractors engaged in construction operations carried out within the United Kingdom, u