Subcontracting Guide for UK Trade Businesses — CIS, Contracts, Rates and Finding Reliable Subbies (2026)

What is subcontracting?

Subcontracting is when you (the contractor) hire another business or self-employed tradesperson (the subcontractor) to carry out part of a job you have a contract to deliver. The legal relationship is between you and your client for the full scope of work; the subcontractor works for you, not the client, under a separate agreement.

This distinction matters. You remain responsible to the client for everything the subbie does. If they do defective work, turn up late, or damage the client's property, that sits with you. Your contract with the client almost certainly gives you no right to blame a subcontractor — from the client's perspective, you delivered (or failed to deliver) the job.

Subcontracting is extremely common across all trades: a main builder subcontracts the electrical first fix to an electrician; a plumbing company uses a specialist subcontractor for commercial gas work they're not Gas Safe registered for; a roofing firm brings in a labourer gang from a subcontracting labour-only company during a busy spell. The chain can run several levels deep on larger projects.

CIS: when it applies and what it requires

The Construction Industry Scheme (CIS) is an HMRC scheme that requires contractors to deduct tax from payments to subcontractors and pass it to HMRC as an advance payment against the subcontractor's Income Tax and National Insurance. It applies across a wide range of construction operations: groundwork, bricklaying, roofing, plastering, plumbing, electrical installation, decorating, scaffolding, demolition, joinery, tiling, drainage — essentially any work forming part of a construction project.

CIS applies when a contractor pays a subcontractor for construction work carried out in the UK. It does not apply when a tradesperson works directly for a private homeowner as the end client — only when there is a contractor above them in the chain. It also only applies to the labour portion of a payment. If a subcontractor invoices separately for materials (at cost, not marked up commercially), the CIS deduction applies only to the labour line.

As a contractor, you must register for CIS with HMRC before making your first payment to a subcontractor. You cannot pay first and register later. Once registered, your obligations every month are:

• Verify each new subcontractor with HMRC before their first payment
• Apply the deduction rate confirmed by HMRC at verification
• Give every subcontractor from whom you deduct a written payment and deduction statement
• Submit a monthly CIS return by the 19th of the following month
• Pay the deducted amounts to HMRC by the 19th (or 22nd for electronic payment)

CIS deduction rates: 20%, 30% and 0%

HMRC applies one of three deduction rates to every subcontractor. The rate is confirmed when you verify the subcontractor before their first payment.

The 30% rate hits more subcontractors than you would expect. It applies not only to those who have never registered for CIS, but also to anyone whose details on HMRC's system do not exactly match what you submit at verification — a name variation, a recently changed company structure, or a UTR entered incorrectly. If verification fails, you must apply 30% regardless of the subcontractor's assurances. Tell them to contact HMRC to resolve the mismatch and re-verify once they confirm it is fixed.

Gross payment status (0%) is worth pursuing once a subcontractor has been registered for 12 months and has a clean compliance record. They apply through their Government Gateway account. The main criteria are: construction turnover of at least £30,000 per year (excluding materials and VAT), all Self Assessment returns filed on time, and no outstanding tax debts. The cash flow benefit is real — receiving the full invoice amount rather than 20% short each month is significant for a growing subcontractor.

Verifying a subcontractor

Before making the first payment to any subcontractor, you must verify them with HMRC. Verification is done online through HMRC's CIS online service (via your Government Gateway account), by phone on 0300 200 3210, or through most accounting software that supports CIS — Xero, QuickBooks and FreeAgent all have CIS modules.

You provide the subcontractor's name, UTR (Unique Taxpayer Reference), and for limited companies their company registration number. HMRC responds in real time with the applicable rate. Keep the verification reference number HMRC gives you — it is your evidence that the correct rate was applied if HMRC ever queries a payment.

Verification is per contractor. Even if ten other contractors have already verified the same subcontractor, you must verify them yourself independently. Once verified, you do not need to re-verify for subsequent payments in the same and following tax year, unless their details change.

Critically: if you pay a subcontractor without verifying them first, and it later turns out the correct rate was higher than what you applied, you are liable for the shortfall — not the subcontractor. Always verify first.

Monthly CIS returns: deadlines and penalties

As a CIS contractor, you must file a monthly return covering every subcontractor you paid in that tax month. The tax month runs from the 6th of one calendar month to the 5th of the next. The return is due by the 19th of the following month.

Each return must include for every subcontractor paid: their name and UTR, the gross amount paid, the cost of materials (if separately identified), and the CIS deduction made. Nil returns are still required — if you paid no subcontractors in a given month, you must still file a nil return by the 19th. Forgetting because there was "nothing to report" generates the same penalty as any other late return.

Penalty structure for late returns:

• £100 for one day late (even by minutes)
• £200 at two months late
• £300 or 5% of CIS deductions (whichever is higher) at four months
• A further £300 or 5% at ten months

Set a repeating reminder on the 15th of every month while you are registered as a CIS contractor. That gives you four days to gather the information, file, and resolve any issues before the deadline. The only way to avoid monthly returns entirely is to formally notify HMRC that you are taking a period of inactivity — they will then suspend the filing requirement for that period.

CIS statements: what to give subbies and how to keep records

Every time you make a payment from which you deduct CIS, you must give the subcontractor a written payment and deduction statement within 14 days of the end of the tax month in which the payment was made. The statement must show:

• Your name, employer reference number and UTR as contractor
• The subcontractor's name and UTR
• The tax month the payment relates to
• The gross amount paid
• Any materials cost excluded from the deduction
• The amount of CIS deducted
• The net amount paid

Subbies need these statements to complete their Self Assessment returns and claim credit for the tax that was deducted. Do not wait for them to ask — issuing them promptly is a legal obligation. Keep a copy of every statement you issue and every return you file for at least three years.

Employment status vs self-employment: IR35 risk

Using subcontractors does not automatically mean they are self-employed for tax purposes. HMRC can look at the reality of the working relationship and decide that a subcontractor is, in substance, an employee — triggering unpaid PAYE, NI, and penalties under IR35 rules. This is a genuine risk for trade businesses, not just large corporates.

The key factors HMRC considers are control (do you dictate how, when and where they work?), substitution (can they send someone else to do the job, or must it be them personally?), and mutuality of obligation (are you obliged to offer work and they obliged to accept it?). A subbie who works exclusively for you, uses your tools, works your hours, and cannot send a replacement looks a lot like an employee regardless of what their invoice says.

To protect yourself: use multiple subbies rather than relying on one who works for you week in week out; make sure written agreements include a genuine substitution clause; avoid providing your tools as standard; and do not supervise subbies to the degree you would a direct employee. If a subcontractor has worked for you for more than 12 months doing broadly the same work each week, it is worth taking employment law advice on whether the relationship has drifted into de facto employment.

Subcontractor day rates by trade (2026)

Subcontractor day rates vary by trade, location, experience and demand. The figures below are typical ranges for self-employed subbies in England — rates in London and the South East are generally 15–25% higher, and rates in Scotland and Wales slightly lower.

These are labour-only day rates — they do not include materials. On labour-and-materials subcontracts, agree a clear split upfront so the CIS calculation is straightforward and margins are transparent. Be wary of unusually low day rates: a subbie working for significantly below market rate is often cutting corners on insurance, qualifications or HMRC compliance — liabilities that can land with you.

Finding reliable subbies

The best subcontractors are rarely found on generic job boards. The most reliable sources are:

Your existing trade network. Ask other contractors who they use and trust. A recommendation from someone you know and respect is worth more than any profile on a platform. Build relationships with contractors in adjacent trades — your plumber knows reliable electricians, your electrician knows reliable plasterers.

Local training providers and colleges. Construction colleges and apprenticeship programmes regularly produce newly qualified tradespeople who want subcontracting experience. Some actively maintain lists of former students looking for work. Younger subbies often price more keenly and bring up-to-date qualification knowledge.

Apprenticeship connections. If you or anyone in your network has taken on apprentices, former apprentices who have qualified are strong candidates — you already know their work ethic and capabilities.

Trade associations. Bodies such as the NICEIC, Gas Safe Register, NAPIT, FMB, and NHBC approved contractor lists are searchable by trade and location. Subbies who maintain membership are at least demonstrating a basic commitment to their qualifications and compliance.

Site-based contacts. On larger projects, subbies working for other contractors on the same site are visible. If their work looks good and their attitude is right, introduce yourself.

Vetting subbies: what to check before you use them

Never use a subcontractor for the first time on a job where a failure would seriously damage your relationship with a client. Vet thoroughly before you commit.

Insurance: Ask for a copy of their public liability insurance certificate — minimum £2 million cover is industry standard; £5 million is advisable for commercial work. Check it is in date and not about to expire. If they have their own workers, employer's liability insurance is a legal requirement. Do not accept verbal assurances; ask for the actual certificate.

Qualifications and registrations: Verify that any trade-specific registration is current. Gas Safe can be checked at gasregistered.co.uk; electrical competent person schemes (NICEIC, NAPIT, etc.) are searchable online. For any trade requiring a CSCS card, check the card is valid and the right category for the work being done.

References: Ask for at least two references from contractors (not homeowners) they have worked for in the last 12 months. Call the references — do not just send a message. Ask specifically about reliability, quality of finish, communication when problems arose, and whether they would use the subbie again.

Previous work: Ask to see photos of recent completed projects, or ideally visit a live job. The quality of their previous work tells you far more than anything they say about themselves.

CIS registration: Confirm they are registered for CIS and give you their UTR before they start. An unregistered subbie means you must apply the 30% deduction rate — which some subbies dislike and may try to avoid by working cash in hand. Do not accept that arrangement — it exposes you to HMRC risk.

Written subcontract agreements: what to include

A handshake and a WhatsApp message are not sufficient for any job that carries real financial risk. A written subcontract agreement does not need to be a complex legal document — a clear one or two page document covering the key points is enough for most trade work. At a minimum include:

• Scope of works: exactly what is included and explicitly what is not. Scope disputes are the most common cause of subcontractor arguments.
• Rate and basis of payment: day rate, fixed price, or schedule of rates. If fixed price, specify what variations cost extra.
• Payment terms: when invoices should be submitted, when you will pay, and what information the invoice must contain (including UTR for CIS).
• Programme: start date, expected duration, key milestones if relevant.
• Materials: who supplies what, and who bears the cost of over-ordering or wastage.
• Liability and insurance: confirm the subcontractor holds valid public liability insurance and is responsible for their own tools, employees and workmanship.
• Defects liability: how long after completion the subcontractor remains responsible for defects in their work (typically 12 months).
• Substitution clause: confirm they may send a suitable replacement operative (important for employment status purposes).
• Termination: on what grounds either party can end the agreement and what notice is required.

Payment terms and retentions

Standard payment terms for trade subcontractors are 14–30 days from invoice. Smaller subbies often need payment faster — a sole trader running on tight margins cannot wait 60 days for payment. Shorter terms help you attract and retain good subbies; unreliable payment is the fastest way to lose them.

On larger jobs, retentions are common: typically 5% of the contract value held back until practical completion, and a further 2.5% held until the end of the defects liability period. Retentions protect you if a subbie's work develops problems after handover. If you are working for a main contractor who holds retention against your business, it is reasonable to apply the same principle downstream to subbies — but make sure the retention percentage and release terms are clearly written into the subcontract agreement and not just assumed.

Note that if you are a contractor under the Construction Act (most commercial construction contracts), the Late Payment of Commercial Debts Act gives subbies the right to charge statutory interest at 8% above base rate on late payments — another reason to pay on time.

Managing quality: sign-off, snag lists and defects liability

Do not assume the job is done because the subbie has left site. Build a simple sign-off process into every subcontract:

Interim inspections: on any job longer than a week, check the work before you lose the ability to flag problems easily. A quick site visit halfway through is far less disruptive than a snag list after the room has been plastered over.

Practical completion inspection: walk the job with the subbie at the point they consider themselves done. Agree a snag list on the spot, in writing, with a deadline for resolution. Do not pay the final invoice until snagging is complete — that is when you have the most leverage.

Defects liability period: make clear in the subcontract that their responsibility for defects in their work continues for 12 months after completion (or whatever period your main contract requires). If a defect appears within that period, they attend and rectify at their own cost. Keep a record of all defects, the dates they were notified, and how they were resolved.

Insurance requirements

Every subcontractor you use should hold their own public liability insurance. The minimum most clients and main contractors accept is £2 million; for commercial or larger residential projects, £5 million is standard. Always request a current certificate — not a verbal confirmation — before work starts and diarise the renewal date.

If the subcontractor has their own workers (i.e. they are not a sole trader working alone), they are also required by law to hold employer's liability insurance of at least £5 million. Failure to hold it is a criminal offence. Do not assume it exists — ask for the certificate.

Check whether your own public liability policy covers you for work done by subcontractors. Some policies exclude subcontracted work, or require you to notify your insurer when using subbies. If a subcontractor causes third-party damage and their insurance does not respond, you may need yours to pick it up — so know in advance whether it will.

When subcontracting goes wrong

Even with good vetting and written agreements, problems happen. The most common issues are defective work, no-shows, and payment disputes.

Defective work: notify the subcontractor in writing as soon as you identify the defect. Photograph and document everything before any remedial work is done. Give them a reasonable opportunity to return and fix the problem. If they refuse or their fix is inadequate, get independent quotes for remedial work and pursue the cost through the written agreement. If the defect causes losses to your client (e.g. you have to extend your programme, pay for temporary accommodation), you may be able to claim consequential losses — legal advice is worth taking on any significant claim.

No-shows: a subcontractor who does not turn up without notice is a fundamental breach of contract. Follow up immediately in writing. If they have left you in a position where you cannot complete your programme, document every cost — hiring a replacement at short notice, extending your plant hire, overrunning your completion date with the client. These are recoverable losses if you have a written agreement and can prove causation.

Payment disputes: if a subcontractor disputes your right to withhold payment or retain money, the Construction Act gives them the right to adjudication — a quick, relatively low-cost dispute resolution process where a third party makes a binding decision within 28 days. Make sure your payment notices and withholding notices are issued correctly and on time (the Act has strict requirements); failure to follow process can mean you must pay even if the underlying dispute is valid.

The best protection against all of these is the written subcontract agreement. Without it, disputes become he-said-she-said arguments with no reference point. With it, the agreed scope, rate, payment terms, defects liability and termination rights are all on paper.