Subcontractor or employee,
and why HMRC may disagree.
Paying somebody through CIS does not make them self-employed. The tests that decide it, the arrangements that fail them, and the declaration you sign every month saying you have considered it.
Published ·4 min read·Written by Unibuild
Paying somebody through CIS does not make them self-employed. Employment status is decided on the facts of the working arrangement, principally control, personal service and mutuality of obligation, and the label on the contract does not settle it. The monthly CIS return includes a declaration that you have considered exactly this.
CIS is a deduction mechanism, not a status test
This is the misunderstanding the whole subject rests on, and it is widespread enough to be worth stating bluntly.
The Construction Industry Scheme governs how payments to subcontractors are taxed at source. It does not decide whether the person receiving them is genuinely self-employed. A worker can be verified, deducted from at twenty per cent, appear correctly on every monthly return, and still be an employee in law if the working arrangement looks like employment.
Which means the sentence "he is CIS" answers a question nobody asked. It describes how you pay somebody. It says nothing about what they are.
Being on CIS is not a status. It is a payment method, and HMRC has never suggested otherwise.
What actually decides it
Status is determined by the reality of the arrangement rather than by what the contract says, and no single factor is decisive. The picture is built from several, and these are the ones that carry the most weight in construction.
- Control. Who decides what is done, how, when and where. A worker told which site to attend, at what time, doing what they are directed to do that day, looks controlled.
- Personal service and substitution. Whether the person must do the work themselves, or can genuinely send a competent substitute at their own cost. A real, exercisable right of substitution is one of the strongest indicators of self-employment; a clause nobody has ever used, or that requires your approval of the individual, is weaker.
- Mutuality of obligation. Whether you are obliged to offer work and they are obliged to accept it. An arrangement where somebody turns up every Monday because there is always work is different from one where each package is offered and can be refused.
- Financial risk and equipment. Whether they can profit from working efficiently or lose money on a job, whether they provide their own tools and plant, and whether they put right defective work at their own cost.
- Integration. Whether they look like part of your business: your uniform, your van, your email address, supervising your staff, attending your appraisals.
The arrangements that get looked at
Not the genuinely independent trade with several clients, their own tools, their own insurance and their own quotations. That arrangement is what self-employment looks like and it is unremarkable.
The ones that attract attention are recognisable: the long-term operative who has worked for you and nobody else for two years, on your van, in your branded workwear, told each morning where to go, using your tools, paid weekly for hours rather than for outputs. Every one of those factors individually is survivable. Together they describe employment with a different payment method attached.
Also worth naming: labour-only operatives paid a day rate for turning up, and long-term supervisors and gangers who direct your other workers, which is a difficult position to reconcile with being outside the business.
The declaration you sign every month
The CIS monthly return includes a declaration that none of the contracts covered are contracts of employment, and that the employment status of each subcontractor has been considered.
That is not a formality and it is signed twelve times a year, usually by somebody in payroll who has never met the operatives. If status is later challenged, those declarations form part of the picture, because the firm has stated on the record each month that it turned its mind to the question.
The practical implication is small and useful: whoever files the return should be able to name anybody on it whose status is not obviously clear-cut, and that should be a live conversation with your accountant rather than a box that gets ticked.
What it costs to be wrong
Where an arrangement is recharacterised, the liability for the PAYE and National Insurance that should have been operated sits with the engager rather than the worker, and it can run back over past years with interest and penalties on top. Employment rights may also follow, which is a separate exposure from the tax one.
Two things are worth saying honestly. HMRC provides a status checking tool, and using it and keeping the outcome is better than not, though it is only as good as the answers put into it. And this is genuinely a matter for advice on the specific facts rather than for a web page, which is why this article describes the tests rather than applying them.
Where to start, on Monday
List everybody you pay through CIS who has worked for you for more than a year and effectively nobody else. Against each, answer four questions: do they use your tools, do you tell them where to go each day, could they send somebody else, and can they turn work down.
Where the answers are yours, yours, no and no, that is the arrangement to raise with your accountant. Not because it is necessarily wrong, but because it is the one you would rather look at now than be asked about later.
The follow-up questions.
The declaration this turns on is on the monthly return, covered in CIS monthly returns.
Does paying someone through CIS make them self-employed?+
What decides whether a construction worker is employed or self-employed?+
Which construction arrangements are most likely to be challenged?+
What am I declaring on the CIS monthly return about employment status?+
Who pays if a subcontractor is recharacterised as an employee?+
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