A subcontractor is a specialist firm hired by a Main Contractor to carry out part of a construction project under its own contract. Common examples are electrical, mechanical, plastering and groundworks firms. The main contractor stays responsible to the Client for the whole job, including the subcontractor's work.
Worked example
A main contractor appoints a plasterer on an £85,000 Subcontract: £51,000 labour and £34,000 materials. In month two the plasterer's assessed Valuation is £20,000, of which £12,000 is labour. The plasterer is registered for CIS at the standard 20%.
| Line | Amount |
|---|---|
| Assessed valuation (excluding VAT) | £20,000 |
| Labour element | £12,000 |
| CIS deduction at 20% of labour | (£2,400) |
| Paid to the plasterer (before VAT) | £17,600 |
The £2,400 goes to HMRC through the main contractor's monthly CIS return. The tax applies to labour, not materials, so the split must be right on every payment. There is more in our guide to how CIS works.
Subcontractors in the cost report
On most jobs, subcontract packages are the largest cost line. Control comes from three records kept together: the budget for the package, the subcontract order with approved variations, and the valuations paid. The difference between the order and the valuations to date is what you still owe. Retention you hold is a liability that comes due later.
Practical points:
- Verify each subcontractor with HMRC before the first payment, so the right CIS rate is applied.
- Pay against valuations that match the order, not against invoices alone.
- Track variations instructed to the subcontractor and the matching Variation to the client, so you are not carrying cost you cannot recover.
For the subcontractor, the same records show the opposite view: the order value, what has been applied for, what has been paid and what is held in retention.
Related terms
Subcontract, Main Contractor, Supplier, Retention, Valuation.
Planyard's subcontractor payment applications collects each application against the subcontract order and splits labour and materials for CIS, so what you pay and deduct is calculated before approval.
