What Is a Bona Fide Subcontractor

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.

The term bona fide subcontractor is used a lot in construction, tax, payroll, and CIS discussions, yet it is one of the most misunderstood phrases I come across in practice. People often assume it simply means someone who is self employed, or someone who invoices for work, but in reality it carries a much deeper meaning, particularly in the eyes of HMRC.

I regularly deal with situations where someone believes they are a bona fide subcontractor, only for HMRC to later decide they are not. When that happens, the consequences can be serious, including backdated tax, National Insurance, penalties, and interest, often landing on the contractor rather than the worker. This is why understanding what a bona fide subcontractor really is matters so much.

In this article I want to explain clearly what a bona fide subcontractor is, where the term comes from, how HMRC views it in practice, how it links to CIS and employment status, and how contractors and subcontractors can protect themselves by getting this right from the start. This is written from real world experience of dealing with HMRC enquiries, CIS reviews, and employment status disputes across the UK construction sector.

What does bona fide actually mean in this context

The phrase bona fide comes from Latin and broadly means genuine or in good faith. When applied to subcontracting, it is used to describe someone who is genuinely operating as an independent business, rather than someone who is effectively an employee in all but name.

A bona fide subcontractor is not just someone who calls themselves self employed. They are someone who meets a set of practical and behavioural criteria that show they are running their own business and taking on work as a contractor, rather than being part of the engager’s workforce.

This distinction is critical because tax treatment, legal obligations, and risk sit in very different places depending on whether someone is genuinely self employed or effectively employed.

Why the concept of a bona fide subcontractor matters

The reason this concept exists at all is because of the long standing tension in construction between flexibility and compliance.

Construction relies heavily on subcontracting. Projects scale up and down, trades are brought in as needed, and many skilled workers prefer the independence of subcontracting. At the same time, HMRC needs to ensure that employment taxes are paid correctly and that self employment is not being used simply to avoid PAYE and National Insurance.

The idea of a bona fide subcontractor is HMRC’s way of separating genuine businesses from disguised employment.

If someone is a bona fide subcontractor, they can be paid under CIS as self employed. If they are not, PAYE may apply even if they invoice and even if both parties prefer them to be self employed.

Bona fide subcontractor and CIS explained together

The term bona fide subcontractor is often used in CIS discussions, but it is important to understand that CIS registration alone does not automatically make someone bona fide.

You can be CIS registered and still not be a bona fide subcontractor if, in reality, you are working like an employee.

CIS is about how tax is collected. Employment status is about the nature of the working relationship. The two overlap, but they are not the same thing.

HMRC will always look beyond labels and registrations to the actual working arrangements.

The core characteristics of a bona fide subcontractor

Rather than relying on one single test, HMRC looks at the overall picture. No single factor is decisive on its own. What matters is whether the relationship, taken as a whole, looks like genuine subcontracting.

Some of the key characteristics HMRC expects to see include independence, financial risk, and control over work.

A bona fide subcontractor will typically:.

• Control how their work is done rather than being directed minute by minute

• Have the ability to refuse work or send a substitute

• Provide their own tools and equipment

• Correct defects at their own cost

• Be paid per job or per contract rather than by the hour

• Work for multiple clients over time

• Carry their own business risk

• Market themselves as a business

These factors help show that the individual is operating independently rather than being part of the engager’s workforce.

Control and supervision in practice

Control is one of the most important areas HMRC examines.

If a worker is told exactly when to start, when to finish, how to carry out tasks, and is closely supervised in the same way as an employee, it becomes difficult to argue they are a bona fide subcontractor.

That does not mean there can be no site rules or quality standards. All construction sites have safety procedures, deadlines, and specifications. The key difference is whether the worker has autonomy over how they deliver the work within those boundaries.

A genuine subcontractor is responsible for delivering an outcome, not simply turning up and following instructions.

The right of substitution and why it matters

One of the strongest indicators of bona fide subcontracting is the right of substitution.

This means the subcontractor can send someone else to do the work in their place, provided that person is suitably qualified and meets site requirements.

In practice, HMRC looks at whether this right exists in reality, not just on paper. If substitution is allowed contractually but would never be accepted in practice, HMRC may disregard it.

A genuine subcontractor is engaged to provide a service, not their personal labour.

Financial risk and responsibility

Financial risk is another key indicator.

A bona fide subcontractor takes on risk in a way an employee does not. This might include quoting for work, absorbing overruns, fixing mistakes without additional pay, or having to invest in tools, training, and insurance.

Employees are generally paid regardless of how long a task takes or whether mistakes occur. Subcontractors are not.

If a worker is paid a guaranteed hourly rate, never quotes, never corrects defects at their own cost, and bears no risk, HMRC may view the arrangement as employment in disguise.

Tools equipment and materials

Who provides tools and equipment is often discussed, but it is not as simple as some people think.

Providing small hand tools alone does not automatically make someone self employed. However, a bona fide subcontractor will usually provide significant tools, equipment, or materials relevant to their trade.

If all tools, materials, PPE, and equipment are provided by the engager, it weakens the argument for genuine subcontracting, particularly when combined with other employee like features.

Payment structure and invoicing

How someone is paid matters.

Bona fide subcontractors are usually paid against invoices for completed work or agreed milestones. Payment is often linked to outputs rather than time spent.

Hourly payment does not automatically mean employment, but when combined with control, lack of risk, and exclusivity, it becomes problematic.

Regular weekly payments that look and feel like wages are a red flag for HMRC.

Working for multiple clients

Genuine subcontractors operate a business, and businesses typically have more than one client over time.

If someone works exclusively for one contractor for long periods, particularly on open ended arrangements, HMRC may question whether they are truly independent.

This does not mean you must have multiple clients every week, but there should be evidence that the worker is free to take on other work and does so when opportunities arise.

Contracts and written agreements

Written contracts help, but they are not decisive on their own.

HMRC will read contracts, but they will also test whether the contract reflects reality. A contract saying someone is self employed will not override working practices that point to employment.

For a bona fide subcontractor arrangement, the contract should reflect genuine independence, including substitution rights, payment terms, scope of work, and responsibility for defects.

More importantly, the behaviour of both parties should align with the contract.

Bona fide subcontractors and employment status tests

HMRC uses employment status tests to assess whether someone is employed or self employed.

These tests are based on case law and focus on factors such as control, substitution, mutuality of obligation, and financial risk.

The term bona fide subcontractor is not a separate legal category. It is shorthand for someone who passes these tests and is genuinely self employed.

Understanding this helps avoid the mistake of thinking bona fide status is something you can simply declare.

Mutuality of obligation explained simply

Mutuality of obligation refers to whether the engager is obliged to offer work and whether the worker is obliged to accept it.

In an employment relationship, there is usually an expectation of ongoing work and ongoing availability.

In a bona fide subcontractor relationship, work is offered on a project by project basis, and the subcontractor can accept or decline.

If work is continuous, expected, and there is pressure to be available, HMRC may see mutuality of obligation, which points towards employment.

Why HMRC challenges subcontractor status

HMRC does not challenge subcontractor status randomly. Challenges usually arise because something triggers a review.

Common triggers include:.

• CIS compliance checks

• PAYE inspections

• Worker complaints

• Discrepancies between returns

• Industry wide compliance campaigns

When HMRC investigates, they look at the facts over labels. If they decide someone is not a bona fide subcontractor, they may reclassify them as an employee for tax purposes.

Who is liable if someone is not bona fide

This is one of the most important points for contractors.

If HMRC decides that a worker treated as a subcontractor is actually an employee, the liability for unpaid PAYE and National Insurance usually falls on the engager, not the worker.

This can include several years of backdated tax, plus penalties and interest.

This is why contractors need to be just as careful as workers about bona fide status.

Bona fide subcontractors and limited companies

The picture changes slightly when limited companies are involved, but the underlying principles remain.

A limited company subcontractor is more likely to be seen as bona fide, but it is not automatic. HMRC can still look through the company if the working arrangement resembles employment.

This is particularly relevant where a company supplies only one individual to one client on a long term basis.

Practical steps to demonstrate bona fide subcontractor status

From experience, the strongest protection comes from consistency.

That means making sure that contracts, working practices, payment structures, and behaviour all point in the same direction.

This includes:.

• Clear written contracts reflecting genuine subcontracting

• Evidence of multiple clients over time

• Proper invoicing

• Business insurance

• Control over how work is delivered

• Right of substitution that is genuine

• Responsibility for defects and corrections

None of these alone is enough, but together they build a credible picture.

Common mistakes that undermine bona fide status

Some of the most common mistakes I see include:.

• Paying subcontractors like employees

• Treating CIS registration as proof of status

• Ignoring substitution clauses in practice

• Providing everything and taking all risk away from the worker

• Assuming long service equals self employment

These mistakes often happen gradually rather than deliberately, which is why regular reviews matter.

Why this matters more now than ever

HMRC has become increasingly focused on employment status across all industries, including construction.

With tighter compliance, better data matching, and more targeted investigations, the risk of getting this wrong has increased.

Bona fide subcontractor status is not something to assume or set and forget. It needs to be supported by ongoing practices.

Final thoughts

So what is a bona fide subcontractor. It is not a label, a registration, or a box to tick. It is a description of a genuine business relationship where one party provides services independently, takes on risk, and controls how their work is delivered.

In construction, where subcontracting is the norm, understanding this distinction is essential. CIS registration plays a role, but it does not override employment status rules.

From experience, the problems arise not because people want to avoid tax, but because they misunderstand the rules or rely on assumptions that no longer hold up.

Getting bona fide subcontractor status right protects workers, contractors, and businesses alike. It provides clarity, reduces risk, and supports a healthier construction industry built on genuine independence rather than blurred lines.

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