Can I Be Both a Contractor and a Subcontractor Under CIS?

At Towerstone Accountants we provide specialist CIS accountancy services for contractors, subcontractors, and construction businesses across the UK. We created this webpage for people working in construction who want clear guidance on CIS, including registration, deductions, refunds, and common compliance tasks, without jargon. Our aim is to help you stay compliant with HMRC, avoid costly errors, and keep your records in good order.

This is a question I am asked regularly, often by growing construction businesses that feel they have outgrown the simple labels they started with. Someone begins as a subcontractor, doing work for a larger firm, then over time they start winning their own contracts and bringing in other trades to help. Suddenly they are being told they might be a contractor as well, and the natural reaction is confusion, surely you must be one or the other.

In reality, under the Construction Industry Scheme, it is perfectly possible, and very common, to be both a contractor and a subcontractor at the same time. In my experience, a large proportion of small to medium sized construction businesses fall into this category, even if they do not realise it. The key is understanding how HMRC defines each role, what your responsibilities are in each capacity, and how to register and operate correctly without creating unnecessary problems.

In this article, I am going to explain clearly whether you can be both a contractor and a subcontractor under CIS, how that works in practice, when it applies, and what you need to do to stay compliant. I will also cover the common mistakes I see, because this is an area where misunderstandings can quickly lead to penalties or cash flow issues.

Understanding the Difference Between Contractor and Subcontractor

To understand how you can be both, you first need to understand how HMRC defines each role under CIS.

A subcontractor is someone who carries out construction work for a contractor and is paid for that work. This can be an individual sole trader, a partnership, or a limited company. If you are paid by another business for construction work, and that business operates CIS, you are acting as a subcontractor for that job.

A contractor, on the other hand, is a business that pays others to carry out construction work. Again, this can be a sole trader, partnership, or limited company. If you engage other trades or labour and pay them for construction work, you are acting as a contractor in relation to those payments.

The important thing to understand is that these roles are not fixed labels attached permanently to a business. They are roles you take on depending on the transaction. On one job, you may be a subcontractor. On another, you may be the contractor.

How You Can Be Both at the Same Time

It is entirely possible to be paid by a larger firm for part of your work, while also paying other trades to help you complete that work.

For example, you might be a bricklayer working under a main contractor on a housing development. In that situation, you are clearly a subcontractor. At the same time, you might take on a smaller private job directly for a client and bring in a labourer or electrician to help. In relation to that labourer or electrician, you are now the contractor.

Nothing about CIS prevents this. HMRC is concerned with who pays whom for construction work, not with assigning you a single permanent status.

This is why many businesses need to register under CIS as both a contractor and a subcontractor.

Registering as Both a Contractor and a Subcontractor

If you act as both, you must make sure you are registered correctly for both roles.

Registering as a subcontractor ensures that contractors who pay you can verify you and apply the correct deduction rate, usually 20 percent rather than 30 percent. This affects how much you are paid.

Registering as a contractor allows you to verify your subcontractors, deduct the correct amount of CIS tax from their payments, submit monthly CIS returns, and pay those deductions to HMRC.

One registration does not automatically cover the other. I often see businesses registered as subcontractors but not as contractors, even though they regularly pay other trades. This is a compliance issue that needs to be addressed.

Limited Companies Acting in Both Roles

This question comes up particularly often with limited companies.

A limited company might be subcontracted by a main contractor on a large site, while also subcontracting parts of that work to specialist trades. In this case, the company is both receiving CIS payments and making CIS payments.

The company must be registered as a subcontractor so that deductions made by the main contractor are handled correctly. It must also be registered as a contractor so that it can operate CIS properly when paying others.

From an accounting point of view, this means CIS deductions suffered and CIS deductions made need to be tracked separately, because they are treated differently in the accounts and tax calculations.

Sole Traders and Partnerships in Both Roles

The same principles apply to sole traders and partnerships.

A sole trader might work under a larger contractor during the week and take on private work at weekends, bringing in help as needed. In that scenario, the sole trader is both a subcontractor and a contractor.

The key difference is that for sole traders, CIS deductions suffered are offset against Income Tax and National Insurance through Self Assessment, while CIS deductions made must be reported and paid over monthly as part of contractor obligations.

This dual role is very common, especially among experienced tradespeople who gradually build their own client base.

Common Situations Where Businesses Are Both

In practice, I see businesses acting as both a contractor and a subcontractor in situations such as:.

• Tradespeople who subcontract on large sites but run their own small jobs

• Growing firms that win contracts and outsource specialist elements

• Property developers who carry out some work themselves and subcontract the rest

• Maintenance companies that both supply labour and engage additional trades

In many of these cases, the business owner does not initially realise they have contractor responsibilities under CIS.

What Your Responsibilities Are as a Subcontractor

When you are acting as a subcontractor, your responsibilities under CIS are relatively limited.

You must be registered correctly, provide accurate details to contractors, and keep records of CIS deductions shown on deduction statements.

You should also make sure those deductions are included correctly on your tax return, whether that is a Self Assessment return for individuals or corporation tax and PAYE reconciliations for companies.

Being a subcontractor does not remove your obligation to file tax returns or keep proper records. CIS deductions are simply tax paid in advance.

What Your Responsibilities Are as a Contractor

When you are acting as a contractor, your responsibilities increase significantly.

You must verify subcontractors with HMRC before paying them, apply the correct deduction rate, issue CIS deduction statements, submit monthly CIS returns, and pay deductions to HMRC by the deadline.

Failure to do any of these can result in penalties, even if the subcontractor has paid their own tax correctly.

This is why many businesses struggle when they first move into a contractor role, they are used to being paid under CIS but not used to operating the scheme themselves.

CIS Deductions When You Are Both

One area that causes confusion is how deductions work when you are both receiving and making CIS payments.

CIS deductions made from payments to you are separate from CIS deductions you make from payments to others. They do not cancel each other out automatically.

For example, if you suffer £10,000 of CIS deductions as a subcontractor and deduct £6,000 from your own subcontractors, those figures are treated differently. The £10,000 is tax paid on account by you, while the £6,000 must be paid over to HMRC.

Understanding this distinction is essential for cash flow planning and accurate bookkeeping.

Cash Flow Considerations

Being both a contractor and a subcontractor can put pressure on cash flow if it is not managed carefully.

You may have tax deducted from your income while still being required to pay CIS deductions for others in full and on time. This can create a temporary squeeze, particularly for growing businesses.

In my experience, businesses that plan for this and keep CIS funds separate avoid most problems. Those that do not often find themselves short when payment deadlines arrive.

Common Mistakes I See

There are a few recurring issues I see with businesses acting in both roles.

They register as a subcontractor but not as a contractor
They assume CIS only applies to large firms
They fail to submit monthly CIS returns
They misunderstand how deductions are offset
They underestimate the admin involved

Most of these problems arise from not realising that CIS roles are transactional rather than fixed.

How HMRC Views Dual Roles

From HMRC’s perspective, there is nothing unusual about a business being both a contractor and a subcontractor.

HMRC systems are designed to handle this. What matters is that registrations are correct, returns are submitted on time, and deductions are paid over properly.

Problems arise not because a business is doing both, but because one side of the compliance is overlooked.

When You Should Review Your CIS Status

If your business has grown, changed how it operates, or started taking on different types of work, it is worth reviewing your CIS status.

Ask yourself whether you are paying others for construction work, even occasionally. If the answer is yes, you may have contractor obligations, even if you primarily see yourself as a subcontractor.

This review can prevent issues building up unnoticed.

Practical Advice From Experience

From my experience, the key to managing CIS when you are both a contractor and a subcontractor is clarity and organisation.

Know which role you are acting in for each job
Make sure registrations cover both roles
Keep clear records of deductions suffered and made
Plan cash flow around CIS payment dates
Get advice early if your business model changes

These steps make a significant difference.

Final Thoughts

So, can you be both a contractor and a subcontractor under CIS. Yes, absolutely, and many businesses are, whether they realise it or not.

CIS does not force you into a single category. It looks at each payment and asks who is paying whom for construction work. If you understand that principle and register correctly, operating in both roles is entirely manageable.

In my experience, the businesses that struggle are not those doing both, but those who assume CIS only applies in one direction. Once you accept that your role can change from job to job, and you put the right systems in place, CIS becomes a routine part of running a construction business rather than a constant source of confusion.

You may also find our guidance on what is cis and what is cis registered helpful when dealing with related CIS questions. For a broader overview of CIS rules, compliance, and support, you can visit our cis guidance hub.