Is paying subcontractors
tax deductible?

Yes. What you pay subcontractors for work on your customers' jobs is an allowable business cost, and GOV.UK lists subcontractors among the staff costs a sole trader can claim (staff expenses). If you are a builder or other contractor in the Construction Industry Scheme, you claim the full amount before CIS deductions, in box 18 of the full self-employment pages (SA103F notes), because the deduction you send to HMRC is still part of what you pay the subcontractor (GOV.UK).

Most trades hand some of the work to other people at some point: a builder brings in a plasterer and an electrician, a decorator pays another decorator for a big job, a gardener subcontracts tree work. Those payments are costs of doing the work, so they come off your profit like materials do. The complication is only in construction, where the Construction Industry Scheme changes how you pay and report the money, but not whether you can claim it.

Is paying subcontractors tax deductible?

The HMRC rule

Salaries, bonuses, pensions, benefits, agency fees, subcontractors and employer National Insurance are allowable. Carers and domestic help are not. The rule comes from What you must do as a CIS contractor: make deductions and pay subcontractors, Staff expenses, Self-employment (full) notes, SA103F.

GOV.UK's list of staff costs a self-employed person can claim includes subcontractors alongside employees, agency fees and employer's National Insurance (staff expenses). Under the Construction Industry Scheme you must register as a contractor before you take on your first subcontractor, check with HMRC that each subcontractor is registered, and usually deduct money from their payments and pay it to HMRC, where it counts as an advance payment towards the subcontractor's own tax and National Insurance (GOV.UK). The deduction rates are 20% for registered subcontractors, 30% for unregistered ones and 0% for those with gross payment status, applied to the invoice after taking away VAT, materials the subcontractor paid for, consumable stores, fuel and plant hire (make deductions and pay subcontractors). On the full self-employment pages, construction contractors put their total payments to subcontractors in box 18 (SA103F notes).

When you can claim it

• Payments to subcontractors for work on jobs you do for customers.
• The full invoice amount before CIS deductions, including the part you pay to HMRC.
• Materials the subcontractor supplied and charged you for as part of their invoice.
• Subcontracted work outside construction, such as a designer, a bookkeeper or another tradesperson, as ordinary business costs.

When you cannot

• Payments for work on your own home, even if you ran them through the scheme.
• Paying the same subcontractor twice: once as a CIS payment and again as the deduction you send to HMRC.
• Payments to someone who is really your employee, which belong in payroll, not the scheme.
• CIS penalties and interest for late returns or late payments.

What to claim instead

If the person you pay is really an employee, because you control how, when and where they work and they have no real business of their own, they belong on payroll and their pay goes in wages instead (employment status). If the work was on your home, it is a private cost, and if you included it in your accounts it has to be added back as a disallowable expense.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For paying subcontractors, the deciding rule is staff and subcontractors: salaries, bonuses, pensions, benefits, agency fees, subcontractors and employer National Insurance are allowable. Carers and domestic help are not.

Worked example: a builder with two subcontractors

A builder pays a registered plasterer for £12,000 of labour. He deducts 20%, pays her £9,600 and sends £2,400 to HMRC with his monthly payment. He also pays an electrician with gross payment status £8,000, of which £2,000 is materials, with no deduction. His box 18 figure is the full £20,000, and the £2,400 he sent to HMRC is not claimed a second time. The plasterer's £2,400 counts towards her own tax bill.

Gross, not net

The number that goes in your accounts is the gross payment, before any CIS deduction. The deduction is not money you keep and not a separate cost: you owe it to the subcontractor and pay it to HMRC for them, and it then reduces their tax bill (GOV.UK). Claiming the net amount understates your costs; claiming the net amount plus the deduction as a separate line claims it twice.

Verify before the first payment

Before you pay a new subcontractor, you verify them with HMRC, which tells you whether they are registered and which rate to deduct. You also re-verify anyone you have not included on a CIS return in the current or last two tax years. You need your own UTR, accounts office reference and employer reference, and the subcontractor's UTR and National Insurance number or company details (verify subcontractors).

Working out the deduction

Start with the gross invoice. Take away VAT, materials the subcontractor paid for, consumable stores, fuel (except for travelling) and plant hire for the job, then apply the rate HMRC gave you to what is left. If the subcontractor has no evidence of what the materials cost, estimate it (GOV.UK). The CIS calculator does the arithmetic at 20%, 30% or 0%.

Monthly returns and payments

Each tax month runs from the 6th to the 5th. The return is due by the 19th of the following month, and the payment to HMRC by the 22nd, or the 19th if you pay by post (monthly returns, paying HMRC). A late return costs £100 at one day late, rising with time, and you must declare on each return that the people listed are not employees; getting their status wrong can cost up to £3,000.

VAT and the domestic reverse charge

Since March 2021, VAT-registered subcontractors supplying construction services to a VAT-registered contractor usually do not charge VAT; the contractor accounts for it instead under the domestic reverse charge (GOV.UK). That changes the VAT on the invoice, not the cost you claim: if you are VAT registered you claim the net cost, and if you are not, the VAT you pay is part of the cost.

Subcontracting outside construction

If you are not in construction, CIS does not apply at all. Paying a freelance designer, a virtual assistant or another tradesperson for part of a job is simply a business cost, recorded against the invoice they send you. The same wholly and exclusively test applies: the work must be for your business, not for you personally.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of paying subcontractors belongs in construction industry payments to subcontractors (SA103F box 18). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

Records to keep

Keep each subcontractor's invoices, your verification references, the payment and deduction statements you give them, and your monthly returns. CIS records must show the gross amount of each payment excluding VAT and any deductions, and the cost of materials where you made deductions, kept for at least three years after the end of the tax year they relate to; HMRC can fine you up to £3,000 if you cannot produce them (record keeping). Business records generally need keeping for at least five years after the 31 January deadline.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Putting the net payment in the accounts instead of the gross amount.
• Claiming the CIS deduction you paid to HMRC as a separate expense on top.
• Paying a new subcontractor before verifying them with HMRC.
• Treating someone who works like an employee as a subcontractor.

Related expenses

This item sits in the construction industry payments to subcontractors category. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.