Subcontractor vs Employed — What's the Difference and Why It Matters

A lot of lads work as subcontractors on sites where they're treated more like employees — same hours, same site, same foreman telling them what to do. HMRC have a name for that situation: false self-employment. And they've been clamping down on it for years.

Understanding the difference matters — both so you know your own status and so you're not caught out by an arrangement that doesn't hold up to scrutiny.

Why does it matter?

If you're genuinely self-employed, you're responsible for your own tax and National Insurance through Self Assessment. You don't get sick pay, holiday pay or employment rights — but you get the freedom to work for multiple clients, set your own hours, and claim expenses that employees can't.

If you're actually employed — even if both you and the contractor call it subcontracting — HMRC can reclassify the arrangement. The contractor could face a bill for unpaid employer's NI and PAYE. You could lose self-employed tax benefits you've already claimed.

What makes someone genuinely self-employed?

There's no single test, but HMRC look at a range of factors:

Substitution — can you send someone else to do the work in your place? A genuine subcontractor can. An employee can't. Control — does the contractor control how you do the work, or just what the end result needs to be? Subcontractors control their own methods. Mutual obligation — is there an obligation for the contractor to offer work and for you to accept it? If yes, that points toward employment. Equipment — do you use your own tools and equipment, or the contractor's? Financial risk — do you bear the risk of the job costing more than quoted? Subcontractors do. Employees don't. Multiple clients — do you work for more than one contractor? Working exclusively for one, long-term, on their site, under their direction looks a lot like employment.

The IR35 rules IR35 applies to contractors working through a limited company rather than as a sole trader. If you operate through your own limited company and work primarily for one client in a way that would make you an employee if the company didn't exist, IR35 may apply and the tax advantages of the company structure are removed.

For CIS sole traders, IR35 doesn't apply directly — but the same underlying question of employment status does.

What does this mean practically?

If you work for one main contractor, on their site, under their supervision, using their equipment, five days a week, every week — that's starting to look like employment. Even if you invoice them and they deduct CIS.

Protect yourself by: Working for more than one client where possible Having a written subcontract agreement that reflects genuine self-employment Using your own tools and equipment Having the right of substitution written into your agreement Not working exclusively for one contractor for extended periods without a genuine break

What if you want to be employed instead?

Employment brings sick pay, holiday pay, pension contributions and employment rights. For some people in some situations — especially those with families, mortgages and a preference for certainty — that's genuinely worth more than the flexibility of self-employment.

If you think your current arrangement should be employment, you can raise it with the contractor or seek advice from ACAS. But understand that many contractors in construction specifically structure work as subcontracting to avoid employer obligations — and they may not take kindly to the suggestion.

The honest takeaway Most sole traders in construction are genuinely self-employed. But if your working arrangement looks more like a permanent job than a series of contracts, it's worth reviewing — both for your own protection and to make sure the tax treatment is right.