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

Many businesses act as both contractor and subcontractor under the Construction Industry Scheme. Find out how to register, manage payments, and stay compliant with HMRC.

Introduction

In the construction industry, many businesses and self-employed workers operate under the Construction Industry Scheme (CIS). The scheme governs how payments are made between contractors and subcontractors and ensures that HMRC collects the correct amount of tax from construction work.

It is quite common for someone to act as both a contractor and a subcontractor at the same time. For example, a small building firm might take on work from a larger company (acting as a subcontractor) while hiring its own tradespeople or specialists (acting as a contractor).

This article explains how you can operate as both, what HMRC expects from you, and how to stay compliant with the CIS rules.

Understanding the Construction Industry Scheme (CIS)

The CIS is a tax system designed specifically for the construction industry. It requires contractors to deduct tax from payments made to subcontractors and pass it to HMRC. The deductions count as advance payments towards the subcontractor’s Income Tax and National Insurance.

The scheme applies to most construction work, including:

  • Building and site preparation.

  • Electrical, plumbing, and heating installation.

  • Painting, decorating, and demolition.

Under CIS, you can be registered as:

  • A contractor, if you pay subcontractors to do construction work.

  • A subcontractor, if you are paid by another contractor for your own work.

Many businesses fall into both categories, meaning they must follow both sets of rules.

Acting as a Contractor

If you act as a contractor, you are responsible for managing payments to other subcontractors and making the correct tax deductions.

As a contractor, you must:

  1. Register with HMRC as a contractor under CIS.

  2. Verify each subcontractor’s CIS status using HMRC’s online service before paying them.

  3. Deduct tax at the appropriate rate (20% for registered subcontractors or 30% for unregistered ones).

  4. Pay the deductions to HMRC by the 19th of each month (if paying by post) or by the 22nd (if paying electronically).

  5. Provide monthly statements to each subcontractor showing how much was paid and how much tax was deducted.

  6. Submit monthly CIS returns to HMRC, declaring payments and deductions.

Failing to submit returns or pay deductions on time can result in penalties and interest charges.

Acting as a Subcontractor

If you work for another contractor as a subcontractor, you are the one being paid under CIS. In this case, you must:

  • Register with HMRC as a subcontractor to avoid higher 30% tax deductions.

  • Provide your UTR (Unique Taxpayer Reference) and business details to your contractor.

  • Keep records of all income and deductions.

The contractor will deduct 20% from your payments and pass it to HMRC on your behalf. These deductions count as tax already paid when you file your annual Self Assessment tax return.

If you are a limited company subcontractor, you can offset CIS deductions against your Corporation Tax or PAYE liabilities instead.

Being Both a Contractor and a Subcontractor

It is perfectly acceptable — and common — to be both a contractor and a subcontractor under CIS. Many small businesses in construction operate in both roles at different stages of a project.

For example:

  • You might work as a subcontractor for a large construction company on one project.

  • On another project, you might act as a contractor, hiring electricians or plasterers to complete specific parts of the job.

If you do both, you must register for both roles with HMRC and meet all the obligations for each.

How to Register for Both Roles

You can register for CIS online through HMRC’s website. During registration, you will be asked whether you are a contractor, a subcontractor, or both.

If you already operate as one, you can update your registration later to include the other role. You will need:

  • Your UTR (Unique Taxpayer Reference).

  • Your business name and address.

  • Your National Insurance number (if self-employed).

  • Your VAT registration number, if applicable.

Once registered, HMRC will confirm your CIS status and explain how to manage your responsibilities.

Managing Both Roles Effectively

Being both a contractor and a subcontractor means you must handle two sets of obligations. To stay compliant and organised:

  1. Keep detailed records
    Maintain separate records for income earned as a subcontractor and payments made to your own subcontractors.

  2. File monthly CIS returns
    As a contractor, submit monthly returns showing payments to your subcontractors and any deductions made.

  3. Monitor cash flow
    Because deductions reduce the amount you receive as a subcontractor, ensure you have enough funds to pay your own subcontractors and meet tax obligations.

  4. Reconcile payments and deductions
    Compare your CIS statements with your records to ensure all amounts match HMRC’s records.

  5. Use accounting software
    CIS-compliant accounting software such as Xero, QuickBooks, or Sage can automate verification, reporting, and deduction calculations.

  6. Work with an accountant
    An accountant experienced in CIS can help you manage both roles efficiently, ensuring you remain compliant and claim back any overpaid deductions at the end of the tax year.

Example Scenario

Tom runs a small building firm. He works as a subcontractor for a large construction company on one project and hires two plasterers and a plumber for smaller local jobs.

  • For the larger company, Tom registers as a subcontractor. They deduct 20% from his payments and pass it to HMRC.

  • For the smaller jobs, Tom acts as a contractor, verifying his subcontractors with HMRC and deducting 20% from their payments.

Tom’s accountant keeps records for both roles and files his monthly CIS returns. At the end of the year, any overpaid deductions are offset against his Self Assessment tax bill.

Penalties for Non-Compliance

If you are registered as both a contractor and a subcontractor, failing to meet your CIS responsibilities can lead to serious penalties. HMRC may issue fines for:

  • Late CIS returns (up to £3,000 per return).

  • Failing to verify subcontractors.

  • Not paying deductions on time.

  • Inaccurate or incomplete reporting.

Using a qualified accountant or CIS software significantly reduces the risk of penalties.

The Role of an Accountant

An accountant can make managing both roles under CIS much simpler by:

  • Registering you correctly with HMRC.

  • Verifying subcontractors and calculating deductions.

  • Filing monthly CIS returns on your behalf.

  • Managing your tax payments and claiming refunds.

  • Ensuring compliance with all HMRC deadlines.

They can also help you plan your cash flow to avoid shortfalls caused by CIS deductions.

Conclusion

Yes, you can be both a contractor and a subcontractor under the Construction Industry Scheme. Many small construction businesses operate in this way, working for larger contractors while hiring their own subcontractors.

The key is to stay organised and compliant. You must register with HMRC for both roles, verify and pay subcontractors correctly, and keep accurate records of all payments and deductions. Working with an accountant or using CIS software can make the process far easier, helping you stay compliant and avoid costly penalties.