Subcontractor or employee: why CIS registration decides nothing

A UTR, a CIS registration and an invoice do not make somebody self-employed. They make somebody registered, which is a different thing. HMRC's own guide for contractors puts the order of operations the other way round from how most sites work: "For a contract to be within the scheme, it must not be 'a contract of employment'."

That sentence has an assumption buried in it. Before CIS applies at all, someone has already decided the engagement is not employment — and CIS 340 says who: "it's for the contractor to consider the individual's employment status when the subcontractor is first engaged."

So the question is not whether you deducted 20 per cent correctly. It is whether the person you deducted it from was a subcontractor in the first place — and even a subcontractor with gross payment status, from whom nothing at all is deducted, can still fail this test, because the three tests and the £30,000 decide something else entirely: how much tax is withheld, not whether they work for you as an employee.

The sentence that ends the usual defence

The two arguments trades reach for first are that the man has worked self-employed for twenty years, and that he asked to be paid that way. Neither survives HMRC's guidance:

The fact that the subcontractor has worked in a self-employed capacity before is irrelevant in deciding on their employment status — it's the terms of the particular engagement that matter.

Status attaches to the engagement, not the person. The same bricklayer can be genuinely self-employed on Monday's job and an employee on Tuesday's, and there is nothing strange about that: they are two different sets of terms.

Four questions, four different bills

This is the part worth getting straight before any of the detail, because "employment status" is not one question. It is four, they can produce different answers, and each one sends the bill somewhere else.

A firm can be correct on one line and wrong on another. Winning the tax argument does not settle holiday pay, and settling holiday pay does not settle PAYE.

The common-law question

There is no statutory test of employment for tax. The definition in section 230 of the Employment Rights Act 1996 is circular by design — an employee is someone who works under "a contract of employment", which is "a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing" — and courts fill it in.

What the case law asks about is not the label but the working arrangement: whether the person must do the work personally or can send a substitute, who controls what is done and how, who bears the financial risk, who supplies the plant and materials, and whether there is an obligation to offer and accept work.

Three patterns that show up constantly on sites, and which point away from self-employment:

• A price per day rather than per job. Day rates are not fatal, but they remove the profit-and-loss risk that self-employment usually carries.
• No real right of substitution. A clause allowing a substitute means little if the main contractor has to approve them, or if in three years nobody has ever sent one.
• Tools, van and materials all supplied. A subcontractor with no capital at risk looks like a labourer with a UTR.

Section 230 also names a middle category that has no tax equivalent: a worker, who works under any contract to perform work personally where the other party is not "a client or customer of any profession or business undertaking carried on by the individual". Workers get the National Minimum Wage, paid holiday and rest breaks, but not unfair dismissal or redundancy pay. A great many CIS subcontractors are, in employment law, workers.

The agency rules — section 44 ITEPA 2003

If the worker comes through anyone in the middle, section 44 gets there before the common-law test does.

Where an individual personally provides services to a client through an agency, section 44(3) treats the worker as holding an employment with the agency, and all the remuneration as earnings from that employment. The way out is in section 44(2)(a): the section does not apply if

it is shown that the manner in which the worker provides the services is not subject to (or to the right of) supervision, direction or control by any person.

Read the words in the brackets. It is not whether anyone supervised, but whether anyone had the right to. And it is "by any person" — not by the agency, not by the client, but by anyone at all, including the site manager who is employed by neither.

On a construction site, that test is hard to fail in the worker's favour. Someone almost always has the right to direct the manner of the work. The burden is on the person asserting the exception, too: the wording is "it is shown that".

Off-payroll working, for the subcontractor with a limited company

If you invoice through your own limited company, a fourth party enters: Chapter 10 of Part 2 of ITEPA 2003, the off-payroll working rules, reformed for the private sector on 6 April 2021.

The mechanism is that the client, not you, decides whether the engagement would have been employment if you had contracted directly, and if it would, the fee-payer operates PAYE on the payment.

The client must issue a status determination statement. GOV.UK requires it to be "passed to the worker and the person or organisation you contract with", with the reasons, and requires the client to "keep detailed records of all the employment status determinations you make, including the reasons for the determination and fees paid". The sanction is direct: if the client does not take reasonable care, "the worker's Income Tax and National Insurance contributions become your responsibility".

A disagreement has a clock on it. "You must provide a response within 45 days of receiving notification that the worker or deemed employer disagrees with your employment status determination." Missing 45 days moves the liability to the client in the same way.

Small clients are outside it. Section 60A of ITEPA 2003 defines "small" by reference to the small companies regime in the Companies Act 2006, and says expressly that expressions used in the section and in the Companies Act have the same meaning. GOV.UK's guidance for clients renders it as a client that does not meet two or more of:

• annual turnover of more than £10.2 million;
• a balance sheet total of more than £5.1 million;
• more than 50 employees.

Where the client is small, the determination is not theirs to make. Responsibility for the intermediaries legislation stays with the worker's own intermediary — which means the worker's own company decides, and the worker's own company carries the risk.

Those figures are about to move, and not yet. The Companies Act thresholds rose on 6 April 2025 to turnover of not more than £15 million and a balance sheet total of not more than £7.5 million, with the 50-employee test unchanged. HMRC's April 2025 Employer Bulletin adds the timing that matters: "The threshold changes will have no practical impact for OPW until 6 April 2027, at the earliest, because a company's size is determined by reference to previous years." Until then, £10.2 million and £5.1 million are still the figures to work with, and GOV.UK's client guidance still states them.

For a subcontracting firm the practical effect is a question to ask before pricing, not after: is this client small? A £6 million groundworks contractor is small, and the decision is yours. A national housebuilder is not, and the decision is theirs — but you will be the one living with it.

CEST, and the exact size of its protection

HMRC publishes the Check Employment Status for Tax tool and says: "HMRC will stand by all results given by the tool, as long as the information you give remains accurate and is in accordance with our guidance."

Two conditions, and both are conditions about reality rather than about the tool.

"Remains accurate" means the answers have to keep being true. A determination made in January on the basis that the subcontractor supplies their own scaffold is worthless in June if you started supplying it in March.

"In accordance with our guidance" means the answers have to be defensible readings of the facts. Answering that there is an unfettered right of substitution because the contract contains a substitution clause, when the site would never accept one, is not accurate information.

Keep the printout with the date, the engagement it relates to, and the contract it was answered from. A CEST result with no record of what was answered is a screenshot, not a defence.

What it costs when it is wrong

The tax exposure is not the deduction you should have made. It is the PAYE and both classes of National Insurance you should have operated, on payments already made net, with interest, plus penalties where the failure was careless or deliberate. Employer's National Insurance alone is a cost that never appeared anywhere in the price you quoted.

The employment-rights exposure is separate and runs on its own clock: holiday pay, the National Minimum Wage, and for employees the possibility of unfair dismissal and redundancy claims. A tribunal is not bound by how HMRC categorised the same relationship, and it will look at the same working arrangement afresh.

A short checklist

1. Decide status before the first payment, not at the year end. CIS 340 puts the duty at the point the subcontractor is first engaged.
2. Run CEST per engagement, keep the printout, and re-run it when the arrangement changes.
3. If anyone is in the middle, start with section 44, not with the common-law test. Supervision, direction or control — by anyone — is the question.
4. Ask new clients in writing whether they are small for off-payroll purposes, and keep the answer. Until at least 6 April 2027 the figures are £10.2 million, £5.1 million and 50 employees.
5. Watch the day rate. A person paid by the day, with your tools, on your programme, with no substitute ever sent, is the pattern HMRC looks for.
6. Treat the tax answer and the employment-rights answer as two answers. They are decided by different bodies against different tests, and a comfortable position on one is not a position on the other.

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Position as at 29 August 2026. This article describes the law and is not tax, legal or employment advice. Employment status at common law is decided on the whole of the working arrangement, and no single factor is decisive; where a determination matters, take advice on the specific engagement.

What Zirko does here: it records who worked where, on what, for how long, and under whose instruction, and keeps the quote, the order and the invoice with the job. That evidence is what a status question is ultimately argued from. Zirko does not determine employment status, does not run CEST and does not operate PAYE.