Bona Fide Subcontractors Explained

What is a subcontractor? (UK) 

A subcontractor is someone hired by a contractor to carry out part of a project, usually in construction or trades. 

They are typically self-employed but not always treated the same way for tax or legal purposes. 

In the UK, subcontractor rules are heavily influenced by HM Revenue & Customs and the Construction Industry Scheme (CIS). 

If you’re unsure how CIS works, start here: 

HMRC CIS overview: https://www.gov.uk/what-is-the-construction-industry-scheme 

 

You can also find out about the differences between contractor vs subcontractor, in this blog. 

What is a Bona Fide Subcontractor? 

A bona fide subcontractor is a genuinely self-employed business, working independently. 

Key signs you’re Bona Fide 

• You quote for jobs (not just accept a rate) 

• You can refuse work 

• You supply tools/materials 

• You fix mistakes at your own cost 

• You can send someone else to do the job 

 

Why it matters 

This classification affects: 

• Tax (CIS deductions vs gross payment) 

• Legal liability 

• Insurance responsibilities 

 

HMRC uses employment status tests, you can check your status here: 

https://www.gov.uk/guidance/check-employment-status-for-tax 

What are Labour-Only Subcontractors? 

Labour-only subcontractors are technically self-employed, but function much closer to employees. 

 

Typical Traits 

• Paid hourly or daily 

• Told where and when to work 

• Use company tools 

• Don’t take financial risk 

 

The Risk 

If someone is incorrectly treated as self-employed when they’re effectively an employee, HMRC may class this as false self-employment. 

 

That can lead to: 

• Backdated tax 

• National Insurance liabilities 

• Penalties 

 

Bona Fide vs Labour-Only: Key differences 

Types of subcontractors in the UK 

There are various differences between subcontractors and understanding the different types is critical, especially when it comes to tax, insurance, and responsibility.

Bona Fide Subcontractors

As discussed, these are genuine independent businesses. 

They: 

• Decide how and when work is done 

• Provide their own tools and materials 

• Take on financial risk 

• Can hire other workers 

Think of them as running their own company, even if they’re a sole trader. 

 

Labour-Only Subcontractors

These workers: 

• Provide labour only (no materials) 

• Use the contractor’s tools and equipment 

• Work under supervision 

In many cases, they look very similar to employees — which is where problems can arise. 

Specialist Subcontractors

These are skilled trades like: 

• Electricians 

• Scaffolders 

• HVAC engineers 

They’re usually bona fide subcontractors because they bring expertise and operate independently. 

Domestic vs Commercial Subcontractors

Domestic: hired by homeowners (CIS usually doesn’t apply) 

Commercial: hired by contractors or developers (CIS usually applies)

Why hire subcontractors? 

For businesses 

Hiring subcontractors allows you to: 

• Scale your workforce up or down quickly to match project demand 

• Bring in specialist skills for specific jobs or phases 

• Avoid long-term employment costs like pensions, holiday pay, and payroll admin 

• Keep your focus on core operations while work gets done 

 

For contractors (main contractors) 

Using subcontractors can help you: 

• Deliver projects on time by filling labour or skills gaps 

• Stay flexible when workloads change or deadlines shift 

• Take on larger or more complex jobs without overcommitting your core team 

• Manage risk by spreading work across trusted specialists 

 

For subcontractors 

Working as a subcontractor offers: 

• Flexibility and independence in choosing who you work with 

• Potential for higher earnings compared to employed roles 

• Greater control over your schedule and workload 

• The chance to build experience, reputation, and grow your own business

Requirements for hiring subcontractors  

If you’re hiring subcontractors, there are a few key steps NOT to skip:

Verifying employment status 

You need to determine whether they are: 

• Bona fide subcontractor 

• Labour-only 

• Or actually an employee 

 

Use HMRC’s tool: 

https://www.gov.uk/guidance/check-employment-status-for-tax 

 

Register for CIS

If you’re in construction, you must register with HMRC under CIS. 

 

Check right to work 

You’re legally required to confirm the person can work in the UK. 

 

Use written agreements 

Always have a contract that covers: 

• Scope of work 

• Payment terms 

• Responsibilities 

Check insurance

Make sure subcontractors have appropriate cover (more on that below).

Employer hiring obligations 

Even though subcontractors aren’t employees, you still have responsibilities: 

 

CIS responsibilities 

• Deduct tax (20% or 30% if not registered) 

• Submit monthly returns to HMRC 

• Provide payment statements 

 

More info: https://www.gov.uk/deduction-rates 

 

Health & Safety 

You are still responsible for site safety under UK law. 

Insurance requirements 

Bona Fide Subcontractors 

Typically responsible for their own: 

• Public liability insurance 

• Employers’ liability (if they hire others) 

• Professional indemnity (if applicable) 

 

Labour-Only Subcontractors 

Usually covered under the contractors: 

• Public liability insurance 

• Employers’ liability insurance 

 

Always confirm this, don’t assume.

How working relationships differ 

The biggest differences come down to: 

Control 

Bona fide: decides how work is done 

Labour-only: follows instructions 

 

Risk 

Bona fide: carries financial risk 

Labour-only: does not 

 

Responsibility 

Bona fide: responsible for outcomes 

Labour-only: responsible for effort/time 

How to become a subcontractor  

If you’re starting out:

Register asself-employed

Do this with HM Revenue & Customs. 

 

Apply for CIS

You’ll need this to get paid correctly. 

 

Setup the basics 

• Business bank account 

• Accounting system 

• Insurance 

 

Build work

• Network with contractors 

• Use platforms like Checkatrade or MyBuilder 

• Build a reputation 

Common mistakes to avoid 

• Treating workers as self-employed when they’re not 

• Not registering for CIS 

• Skipping contracts 

• Ignoring insurance requirements 

• Poor record keeping 

FAQs 

What is a bona fide subcontractor? 

A genuinely self-employed individual or business that operates independently and takes on financial risk. 

 

Are subcontractors self-employed in the UK? 

Usually, but not always, it depends on how they work in practice. 

 

Do subcontractors need insurance? 

Yes, especially bona fide subcontractors. 

 

What is CIS? 

A tax scheme for construction work that requires contractors to deduct tax from subcontractor payments. 

 

Can a subcontractor be treated like an employee? 

No, if they are treated like an employee, they may legally be one. 

Final thoughts 

Understanding the difference between bona fide and labour-only subcontractors isn’t just admin, it affects your tax, liability and compliance. 

 

If you’re hiring, get classification right from the start. 

If you’re subcontracting, make sure your setup reflects genuine self-employment. 

Sources 

HMRC CIS guide: https://www.gov.uk/what-is-the-construction-industry-scheme 

Employment status checker: https://www.gov.uk/guidance/check-employment-status-for-tax 

Health & Safety Executive: https://www.hse.gov.uk 

*Disclaimer – This blog has been created as general information and should not be taken as advice. Make sure you have the correct level of insurance for your requirements and always review policy documentation. Information is factually accurate at the time of publishing but may have become out of date.