With many contractors in the construction industry, using the service of subcontractors is a common practice. You may not think that there’s much red tape when it comes to paying them, however there are some regulations to keep in mind while you’re doing so.

How to know if you’re a contractor:

Contractors are companies that have spent more than £3 million on building projects in the last year. Contractors can be construction businesses, government agencies, or any other kind of company. Subcontractors are paid by a contractor for their work on a project.

Construction Industry Scheme (CIS)

Firstly, as a result of the Construction Industry Scheme, contractors and other businesses that often utilise the services of subcontractors must maintain records of their payments (CIS).

Taxes paid by subcontractors must be taken into account by employers in accordance with the CIS, which is regulated by HMRC. A subcontractor’s pay may have to be cut to account for this, but the cut goes to their income tax and National Insurance payments, so it is important to get it right.


If your reports are non-compliant or submitted late, you may receive a penalty.

Penalties can range from £100 to £300, for example if your report is only one day late, this may result in a £100 fine. If your report is delayed by 2 months, this can lead to a £200 fine. However, if your report is 12 months late, the employer must pay £300 or 5% of the CIS reductions on return, whichever amount is higher.

If the employer informs HMRC that subcontractors were not paid in a certain month, the penalty will be waived.

Are there ways to help smooth out the process?

Investing in payroll software is a very effective way of alleviating the stress that comes with this process for contractors. Payroll software allows you to implement the automation of invoices as well as CIS reports, cutting out the paperwork and saving you a lot of time.


Subcontractors and associated tax issues may be confusing, but we’re here to help you with this. Get in touch with us at enquiries@aitaccountants.co.uk for our expert help.