How to Manage Subcontractors UK — A Main Contractor's Guide

Most main contractors learn subcontractor management the hard way — a no-show the morning a client is watching, a botched finish that costs a relationship, or an HMRC letter about CIS returns. Getting this right matters more than most people think. Your liability, your reputation, your cash flow and your compliance are all on the line every time you bring someone on to a job under your name. This guide covers the full picture: vetting, contracts, CIS obligations, insurance, payment terms, day-to-day management and what to do when things go wrong.

Why getting subcontractor management right matters

When a subcontractor works under your name, you carry the risk. If their work fails a building inspection, the client comes to you. If they injure someone on site and aren't properly insured, you could be liable. If you pay them without running CIS deductions when you should have, HMRC can charge you the tax you should have withheld — plus penalties and interest.

On the cash flow side, main contractors often pay subbies before they've been paid by the client. That timing gap is manageable if you've set payment terms correctly, but it can become a serious problem if you haven't. Getting the foundations right — vetting, contracts, CIS, insurance, payment schedules — protects your business at every stage of a project.

Vetting subcontractors before you take them on

Never take a subcontractor on to a job without checking the basics first. Good subbies understand this and will have their documents ready. Anyone who pushes back on basic vetting is a red flag.

Insurance

Ask for a copy of their public liability insurance certificate — minimum £1 million cover, though £2 million or £5 million is more common on commercial sites. If they have any workers of their own (even occasional labourers), they also need employer's liability insurance. Check that the policy is current, not expired, and that the work they're doing falls within the scope described on the certificate. Some policies exclude specialist trades or work above a certain height.

Qualifications and accreditations

Depending on the trade, check for the relevant cards and registrations. Gas engineers must be Gas Safe registered — verify this on the Gas Safe Register website using their licence number, not just by looking at their card. Electricians doing notifiable work need to be registered with a Part P competent person scheme such as NICEIC or NAPIT. Plumbers, roofers, scaffolders and others may have trade body memberships that indicate a baseline standard. CSCS cards are required on most commercial sites.

CIS status check

Before making any payment under CIS, you must verify the subcontractor with HMRC through the CIS online service or by calling the CIS Helpline. You'll need their UTR (Unique Taxpayer Reference) and, for sole traders, their National Insurance number. HMRC will tell you whether they're registered for CIS and what deduction rate applies. Do not rely on the subcontractor's word. Verification takes a few minutes and the record protects you if there's ever a dispute about deductions.

References

Ask for references from other main contractors they've worked for, not just end clients. Call the references rather than accepting written ones. Ask specifically about reliability, quality of finish, how they handle snags, and whether they communicated well when something went wrong. One or two solid references from contractors in a similar line of work is worth more than a long list of client testimonials.

Contracts and agreements

Every subcontractor relationship should be documented in writing, even if you've worked together before. A handshake arrangement is fine when everything goes smoothly — it's when something goes wrong that you need the paper trail.

A solid subcontractor agreement should cover:

• Scope of works — a precise description of what the subcontractor is responsible for, what is excluded, and what the deliverable looks like
• Programme and programme obligations — start date, completion date, key milestones, and the consequence of delay
• Price and payment terms — fixed price or day rate, when invoices should be submitted, when payment will be made, and any retention clauses
• CIS deductions — confirm in writing that you will make CIS deductions at the applicable rate and provide monthly deduction statements
• Insurance obligations — list the minimum cover required and confirm the subcontractor is responsible for maintaining it throughout the contract
• Health and safety — reference to any site rules, method statements or risk assessments required
• Defects and rectification — how long after completion the subcontractor is liable to return and remedy defects at their own cost
• Termination — the circumstances under which either party can end the agreement and the notice required

For larger or longer engagements, consider using a standard form subcontract such as the CIOB's or a bespoke one drafted by a construction solicitor. For smaller jobs, a clear written order confirmation or letter of intent may be sufficient — but get it signed before work starts.

CIS obligations for main contractors

The Construction Industry Scheme (CIS) applies to most construction work in the UK. As a main contractor paying subcontractors for construction work, you have three core obligations:

1. Register as a CIS contractor

You must register with HMRC as a CIS contractor before making your first subcontractor payment. You can do this through HMRC's online services. If you're already registered for Self Assessment or Corporation Tax, you'll still need a separate CIS contractor registration.

2. Verify subcontractors and apply the correct deduction rate

Once you've verified a subcontractor with HMRC, they will fall into one of three categories:

• Gross payment status — no deduction, the subcontractor pays their own tax directly. HMRC grants this only to subcontractors who meet turnover and compliance thresholds.
• Standard (verified) rate — deduct 20% from the labour element of every payment (not materials)
• Higher (unverified) rate — deduct 30% if you cannot verify the subcontractor with HMRC or they are not registered for CIS

The deduction applies only to the labour and plant element of the payment. If a subcontractor invoices separately for materials they've purchased, those costs are excluded from the CIS deduction — but you must keep evidence (receipts or supplier invoices) that the material costs are genuine.

3. File monthly CIS returns

Every month you must submit a CIS return to HMRC showing every subcontractor you've paid, the gross amount, the materials element and the tax deducted. The deadline is the 19th of the month following the tax month (which runs 6th to 5th). You must also give each subcontractor a monthly CIS deduction statement so they can offset the deductions against their own tax bill.

Late or missed CIS returns attract automatic penalties starting at £100, rising to £3,000 or more for significant delays. If you have no payments to report in a given month, you still need to submit a nil return or notify HMRC that you're inactive for the period.

Insurance requirements

Your own insurance as a main contractor will typically exclude liability arising from the acts of your subcontractors — which is why you need theirs. At a minimum, require:

• Public liability insurance — covers third-party injury or property damage caused by the subcontractor's work. Most sites require a minimum of £1 million; commercial sites often require £2 million or £5 million.
• Employer's liability insurance — legally required for any business that employs people, even temporarily. If your subcontractor brings their own labourers or apprentices to site, they must have this in place — minimum £5 million, though most policies are £10 million.
• Professional indemnity — required if the subcontractor is providing design or specification advice, not just labour.
• Tools and plant cover — not a legal requirement, but worth requesting on larger jobs to avoid disputes if equipment is stolen or damaged on your site.

Collect insurance certificates before work starts and diarise the renewal dates. A subcontractor whose policy lapses mid-project leaves you exposed. Some main contractors set a condition in the subcontract that work must stop if insurance lapses and is not renewed within 48 hours.

Payment terms and the Construction Act

Payment terms with subcontractors are governed by the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act), as amended by the Local Democracy, Economic Development and Construction Act 2009. The key obligations:

• Payment intervals — you must agree at least monthly payment intervals. Ad hoc “pay when I feel like it” arrangements are not compliant.
• Payment notices — within five days of each payment due date, you must issue a payment notice stating the sum you propose to pay and how it's calculated.
• Pay Less notices — if you intend to pay less than the notified sum (e.g., due to defective work or a cross-claim), you must serve a Pay Less notice at least seven days before the final payment date.
• Final payment date — the maximum payment period is 30 days from the due date. Paying later than this without a valid Pay Less notice gives the subcontractor the right to suspend work.
• Retention — retention clauses are common and legal. Typically 5% is held during works, reducing to 2.5% on practical completion, with the balance released at the end of the defects liability period (usually six or twelve months). Your subcontract must specify retention terms clearly.

On cash flow: the temptation is to pay subbies only after the client has paid you (“pay when paid” clauses). These are largely unenforceable under the Construction Act except in the narrow case where the main contract client has become insolvent. Do not rely on them. Build your payment schedule around realistic client payment timelines and ensure you have enough working capital to bridge the gap.

Day-to-day management

Good subcontractor management on site comes down to clarity and communication. Before work starts:

• Run a proper site induction covering health and safety rules, who they report to, where to store materials, and how to raise issues
• Walk through the scope of work together. Make sure there are no assumptions about what's included or excluded.
• Agree on reporting — daily check-in, weekly progress update, or whatever suits the job size. The point is that problems surface early, not at the end.
• Confirm access arrangements — keys, codes, site hours, who else will be on site and when

During the works, do regular quality checks rather than waiting for completion. It's far cheaper to correct an issue at first fix than after second fix or after the client sees it. Keep a brief site diary noting what was completed each day, any instructions you gave verbally, and any issues raised. If you give a verbal instruction to change something, follow it up in writing — a WhatsApp message is fine.

Handling performance issues

Even with good vetting, problems happen. The most common are: late arrival or no-show, work that doesn't meet the required standard, and communication that drops off mid-project.

No-shows and lateness

If a subcontractor doesn't show up and you can't reach them, document it — time, date, who you called, what was said. If it happens twice without a genuine reason, start looking for an alternative. One no-show can put your programme back a week. Two can lose you the client. Your contract should specify that persistent failure to attend constitutes a breach entitling you to engage a replacement and recover any additional cost from the original subcontractor.

Poor quality work

Raise it immediately, in writing, with photos. Give a reasonable timeframe to return and remedy the defect — typically 24 to 48 hours for critical issues, longer for minor snags. If they refuse or fail to remedy, you have the right to engage another contractor to fix it and deduct the reasonable cost from any money owed. This needs to be backed up by your contract terms. Keep all correspondence and photographs — if it ends in a dispute, that evidence is everything.

Mid-project disputes

Most disputes between main contractors and subbies come down to scope creep (who's responsible for something that wasn't clearly defined) or payment (the subcontractor thinks they're owed more than you're paying). The Construction Act gives both parties rights: the subcontractor can refer disputes to adjudication, a fast-track process that delivers a binding decision in 28 days. If you find yourself in adjudication, take it seriously — get legal advice quickly.

Keeping records for HMRC

As a CIS contractor, HMRC expects you to keep records that demonstrate compliance for at least three years. That means:

• Verification references for every subcontractor verified through HMRC
• All invoices received from subcontractors, showing the labour and materials split
• Evidence that material costs claimed by subcontractors are genuine (supplier receipts where available)
• Monthly CIS return confirmations
• Deduction statements issued to each subcontractor each month
• Any subcontractor agreements, purchase orders or written scopes

Keep these in a system that's easy to search. A dedicated folder per subcontractor — physical or digital — with verification, insurance, contracts, invoices and CIS statements in one place makes a compliance check far less stressful. HMRC CIS inspections do happen, particularly if returns have inconsistencies or you're paying large volumes through CIS.

Common mistakes main contractors make

• Skipping verification — paying a subcontractor without running a CIS verification means you may have used the wrong deduction rate. If HMRC audits you, the liability for any shortfall sits with you, not the subcontractor.
• Paying gross when you shouldn't — only pay gross to subcontractors that HMRC has confirmed have gross payment status. Do not take the subcontractor's word for it.
• Not issuing deduction statements — failing to give subcontractors monthly statements is a compliance breach and can cause serious problems for the subcontractor at the end of the tax year.
• Informal agreements — nothing in writing means nothing enforceable. Even a short email confirming the scope, price and programme is better than a handshake.
• Ignoring insurance renewal dates — collecting a certificate at the start and never checking again means you could have an uninsured subcontractor on site without knowing it.