Registering someone for CIS, verifying them with HMRC and deducting 20% does nothing whatsoever to establish that they are self-employed. That sentence surprises most contractors, and it is the reason employment status is the largest untriggered liability in a lot of otherwise well-run trade businesses. The exposure sits with the business paying, not the person being paid.
Guide · Updated August 2026
CIS 340 is explicit. For a contract to be within the scheme it must not be a contract of employment — meaning the scheme applies to workers who are self-employed under the terms of the contract. And then, in the same document:
Employment status is determined by common law principles, not by the scheme. The scheme has no power to make anyone self-employed. It assumes the answer and then taxes accordingly. So a contractor who says "he's CIS, he's self-employed" has described a tax deduction, not a legal position — and the person who has to make the legal determination is the contractor.
gov.uk's stated markers of self-employment: submitting bids or quotes to win work; working without direct supervision; invoicing for work done; being responsible for your own tax and NIC; having no holiday or sick pay; and a contract described as self-employed, consultant or independent contractor.
Employment law does not cover the genuinely self-employed, except for health and safety and, in limited cases, discrimination. That is the flip side of the arrangement and part of why status is contested: it decides not just tax but rights.
Read the indicators against a typical labour-only engagement and the difficulty is obvious. A labour-only subcontractor supplied with all materials and plant, working set hours under direction, on one site, for one contractor, with no right of substitution and no financial risk, matches almost none of the self-employment markers. That arrangement is very likely an employment at common law whatever the paperwork says.
This is where it stops being academic. A 20% CIS deduction is a fraction of what the same engagement costs if it is reclassified as employment.
A contractor pays a labour-only worker £40,000 over a year and deducts CIS at 20%, so £8,000 is deducted and paid over. The contractor's cost is £40,000.
If that engagement is in truth an employment, the contractor should have operated PAYE and employee NIC on the pay, and paid employer NIC at 15% on earnings above the £5,000 secondary threshold. Employer NIC alone on £40,000 is 15% × £35,000 = £5,250 — a cost the contractor never budgeted for, before any question of PAYE and employee NIC that should have been withheld, or interest and penalties.
Across four such workers over three years, the employer NIC exposure alone is in the region of £63,000. That is the scale of the thing, and it is why status is worth ten minutes per engagement.
The exposure sits with the contractor, not the worker. The worker has usually paid income tax and Class 4 NIC through Self Assessment; the missing money is largely employer's NIC, plus the difference in how the rest was collected, plus interest and penalties.
Long subcontract chains multiply this, because each link has its own status question. And the umbrella company rules from April 2026 now push PAYE responsibility up the chain rather than leaving it at the bottom.
CIS 340 draws a line that decides whether the scheme applies at all. Where an agency supplies workers under a contract to carry out construction operations, the agency is a subcontractor and CIS applies to the contractor's payments to the agency. Where the agency merely introduces workers, it is not a subcontractor and CIS does not apply.
And a rule worth committing to memory: "where the off-payroll working rules apply, the payment to the agency will not be a contract payment and the scheme should not be operated on the payments to the agency." Off-payroll and CIS are mutually exclusive on the same payment. A business operating both on one payment has operated one of them wrongly.
Chapter 10 ITEPA 2003 applies where a worker provides services to a client through an intermediary — usually their own limited company — and would have been an employee if engaged directly.
Medium and large private-sector clients must determine status, issue a Status Determination Statement and pass it down the chain. The deemed employer or fee payer then deducts income tax and employee NIC from fees paid to the intermediary, and pays employer NIC. Small clients are exempt: the worker's own intermediary determines status and the original Chapter 8 rules apply.
The size thresholds changed for financial years beginning on or after 6 April 2025. A client is medium or large if two or more of the following apply: turnover over £15m; balance sheet total over £7.5m; more than 50 employees. The previous figures were £10.2m, £5.1m and 50.
HMRC's public-facing off-payroll page still shows the old £10.2m and £5.1m figures. The reliable source is the Employment Status Manual at ESM10006A. A transitional provision applies the new thresholds to a previous financial year to determine size for a year beginning on or after 6 April 2025, and HMRC notes the earliest practical impact is 2027/28 because of filing timelines. If you are near the boundary, this is worth getting right rather than reading off the wrong page.
One more detail with money attached: employees engaged under off-payroll working cannot be counted for Employment Allowance purposes.
From 6 April 2026, recruitment agencies become responsible for accounting for PAYE and Class 1 NIC on payments to workers supplied via umbrella companies. And where there is no agency, the responsibility falls on the end client. HMRC can recover PAYE underpayments from them.
For a construction business this is a direct change in risk. If you source labour through an agency or an umbrella and there is no agency in the chain, you may be the one HMRC comes to for PAYE that somebody else failed to operate. Any builder using agency or umbrella labour now carries recoverable PAYE risk that did not sit with them before.
The practical response is unglamorous: know who is actually in your labour supply chain, keep the contracts, and do not use an umbrella you cannot identify. That is the same instruction the gross payment status guide arrives at from the CIS anti-fraud direction, and for the same reason — from April 2026 both regimes make you responsible for what is happening further down the chain.
A note on our limits here. The specific common-law tests — control, personal service, mutuality of obligation, substitution, financial risk — and the leading cases are matters where we work from HMRC's published position and refer genuinely contested cases to an employment specialist rather than opine on case law. What we can do reliably is tell you where an arrangement sits relative to HMRC's own stated markers, and what it would cost if HMRC disagreed with you.
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No. CIS 340 states that for a contract to be within the scheme it must not be a contract of employment, which means the scheme assumes self-employment rather than establishing it. Registering a worker, verifying them with HMRC and deducting 20% does nothing to make them self-employed. Employment status is decided by common law principles, and HMRC's guidance is explicit that it is for the contractor to consider status when the subcontractor is first engaged, and that the fact someone has worked self-employed before is irrelevant — the terms of the particular engagement are what matter. A CIS deduction is a tax mechanism, not a legal determination.
The contractor, not the worker. The worker has usually already paid income tax and Class 4 NIC through Self Assessment; what is missing is largely employer's National Insurance at 15% on earnings above the £5,000 secondary threshold, plus the difference in how the rest should have been collected, plus interest and penalties. On a worker paid £40,000 a year, employer NIC alone is around £5,250 that was never budgeted, against a CIS deduction of £8,000 that was simply withheld from the worker rather than costing the business anything. Across several workers and several years the exposure runs well into five figures.
The absence of the markers gov.uk lists for self-employment. Those markers are bidding or quoting for work, working without direct supervision, invoicing for work done, being responsible for your own tax and NIC, having no holiday or sick pay, and a contract described as self-employed or independent. A worker supplied with all materials and plant, working set hours under direction, on one site, for one contractor, with no right of substitution and no financial risk matches almost none of them, and is very likely an employee at common law regardless of the paperwork. Duration and exclusivity are what usually turn an arguable case into an obvious one.
No, and this is one of the clearest rules in the area. CIS 340 states that where the off-payroll working rules apply, the payment to the agency is not a contract payment and the scheme should not be operated on it. The two are mutually exclusive on the same payment, so a business applying both to one payment has got one of them wrong. A related distinction matters for agencies: where an agency supplies workers under a contract to carry out construction operations it is a subcontractor and CIS applies to payments to it, but where the agency merely introduces workers it is not a subcontractor and CIS does not apply.
From 6 April 2026 recruitment agencies became responsible for accounting for PAYE and Class 1 National Insurance on payments to workers supplied via umbrella companies, and where there is no agency in the chain that responsibility falls on the end client instead. HMRC can recover PAYE underpayments from whichever party carries it. For a construction business sourcing labour this is a real transfer of risk: you may now be the party HMRC pursues for PAYE that an umbrella failed to operate. The practical response is to know exactly who is in your labour supply chain, keep the contracts, and not use an umbrella you cannot identify.
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