Taking On Help
Subcontractor
Or Employee?
Getting this wrong is one of the most expensive mistakes a growing contractor makes, and it's rarely as simple as what you both agreed on paper.
This is general guidance for UK contractors taking on help. Employment status is decided on the facts of how someone actually works, not just the label on their contract, and disputed cases genuinely turn on detail. Get advice on your specific situation if there's any doubt.
01Why this matters more than it looks like it should
Calling someone a self-employed subcontractor doesn't make them one. HMRC looks at how the work actually happens, and if they decide someone was really an employee all along, the bill lands on you, backdated PAYE, employer National Insurance, and penalties, often for every year you got it wrong.
This is exactly the kind of thing that surfaces in a CIS compliance check, and it's one of the more common triggers for one.
02What HMRC actually looks at
- Control — do you tell them how, when, and where to do the work, or do they decide that themselves and just deliver the result?
- Substitution — could they genuinely send someone else to do the job in their place? A real right of substitution is one of the strongest signals of self-employment.
- Equipment and tools — do they turn up with their own tools and materials, or are you providing everything?
- Financial risk — do they quote for jobs and wear the cost if it overruns, or are they simply paid for time worked regardless of outcome?
- Exclusivity and pattern — do they work for other people too, or are they effectively working full-time, only for you, indefinitely? The more it looks like a regular job, the more it looks like employment.
No single factor decides it on its own, HMRC weighs the whole picture. But someone working set hours, using your tools, taking instructions on how to do the job, and working only for you, for months on end, is going to look like an employee no matter what the paperwork says.
03CIS doesn't settle the question
This is the bit that catches people out. Registering someone under CIS and deducting the right percentage doesn't prove they're genuinely self-employed, CIS is a tax deduction mechanism, not an employment status test. You can operate CIS correctly on someone HMRC would still consider an employee, and still end up liable.
What it actually costs to get wrong
If HMRC reclassifies someone as an employee retrospectively, you can be liable for employer's National Insurance, PAYE that should have been deducted, and penalties, potentially for every tax year the arrangement ran. This is rarely a small number, and it's one of the more expensive mistakes a growing contractor can make without realising.
Often missed
Status isn't fixed once and forgotten. Someone who started as a genuine subcontractor, quoting jobs and working for others too, can drift into looking like an employee over time, if they end up working solely for you, to your schedule, with your tools. Worth reviewing long-standing arrangements occasionally, not just new ones.
This guide is general information about employment status for UK contractors, correct at the time of writing, and isn't personalised advice. Status disputes are fact-specific and can be genuinely finely balanced, always get advice on a particular arrangement if you're unsure.