Determining whether you are a contractor or subcontractor can be confusing, but it’s crucial for understanding your tax responsibilities. Each role comes with different expectations, control over work and legal implications, which can impact how you manage your finances and comply with tax regulations.
What’s the Difference?
The main difference between contractors and subcontractors is that contractors are responsible for the entire project, from planning to execution. They are self-employed professionals who work directly with clients or businesses, and therefore have more control over hours, rates and terms.
Subcontractors are businesses or individuals who are hired by contractors to perform specific tasks within a larger project. Because they work under the contractor’s supervision, they have less flexibility when it comes to the terms of their work.
This distinction is important as it affects tax obligations.
Tax Implications
Contractors are usually responsible for their own taxes, which means they are required to file a yearly self-assessment tax return as well as pay income tax and National Insurance Contributions (NICs) based on earnings.
Subcontractors may have tax deducted at source under the Construction Industry Scheme (CIS) by the main contractor. While subcontractors still need to file their own tax returns, the CIS deductions will be taken into account when calculating the tax owed.
Record-Keeping
Contractors must keep detailed records of their income and expenses for self-assessment tax purposes, including receipts and invoices to back up any claims. Proper record-keeping ensures they stay compliant with HMRC and avoid fines or penalties.
Subcontractors working under CIS also need to maintain accurate records, including payment and deduction statements from the main contractors. Failure to track these details can lead to penalties, so it’s important for subcontractors to stay on top of their paperwork as well.
How We Can Help
Navigating the distinctions between subcontractor and employee status can be confusing, especially when it comes to tax obligations. At G W Cox, we can help determine whether you’re classified as a subcontractor or an employee, ensuring you’re correctly aligned with HMRC’s guidelines.
We’ll also verify your status with HMRC on your behalf, so you can focus on your work without worrying about compliance. Our team will take care of submitting your monthly returns and ensuring your records are always accurate and up to date, giving you peace of mind and confidence in your tax responsibilities.
Are you ready to optimise your accounts process? Reach out today to see how we can help.
