CIS vs PAYE: Should You Treat Subcontractors as Employees?
One of the most expensive mistakes in construction is treating workers incorrectly for tax...
Misclassification can lead to back-dated PAYE, penalties, interest, and a visit from HMRC nobody wants.
The key question: Are they truly self-employed under CIS, or should they be on payroll?
CIS Subcontractor Indicators
A worker is typically CIS if they:
Use their own tools & equipment
Work for multiple contractors
Control their own hours
Can send someone else in their place
Price per job rather than hourly wage
CIS gives flexibility and lower admin, but only if the status is correct.
PAYE Employee Indicators
You may need payroll if they:
Work solely for your business
Can’t send a substitute
Are paid hourly/weekly regardless of job outcome
Use your tools/materials
Work under supervision like an employee
If it looks like employment, HMRC usually treats it as employment.
What happens if HMRC disagrees with your classification?
They can demand:
Back-dated tax and National Insurance
Penalties + interest
Employer NIC costs
Holiday pay claims in extreme cases
A subcontractor costing you £150/day can quickly become £250/day once HMRC is involved.
How to protect yourself
✔ Written contracts for subcontractors
✔ Evidence of independent working status
✔ Clear pricing per project, not per hour
✔ Regular CIS verification + statements
✔ Review worker status annually
If control, obligation and substitution fail - you’re drifting into PAYE territory fast.
Unsure if a worker should be CIS or on payroll?
Book a call and we’ll be happy to review your setup. A wrong call today could cost thousands later.