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.

If you need specialist construction accountants to manage CIS and wider construction tax compliance, explore our fully outsourced accounting services.