Mythbusters: Construction Workers Can Always Be Self-Employed – CIS Rules You Need to Know

Welcome back to our Mythbusters blog series, where we uncover financial myths that could put businesses at risk. At Black & White Accounting, we help businesses stay compliant, tax-efficient, and financially secure—and today, we’re tackling a common misconception in the construction industry: “Construction workers can always be self-employed.”

Many construction firms and workers believe that self-employment status is a simple choice. However, HMRC has strict rules under the Construction Industry Scheme (CIS), and misclassifying workers can result in serious financial penalties. Let’s break it down and make sure you stay on the right side of the law.

The Myth: “Construction Workers Can Always Choose to Be Self-Employed”

It’s a common belief that if a worker wants to be self-employed, they can simply register as a subcontractor and avoid PAYE (Pay As You Earn) tax. Some businesses also assume they can treat all workers as self-employed to avoid payroll responsibilities like National Insurance and holiday pay. Wrong!

The reality? Whether a worker is self-employed or should be on PAYE is not a personal choice—it depends on HMRC’s strict employment status tests.

The Reality: CIS & HMRC Have Clear Rules on Employment Status

Under the Construction Industry Scheme (CIS), contractors must deduct tax at source from self-employed subcontractors before paying them. But not everyone working in construction qualifies as self-employed.

How Does HMRC Decide If a Worker Can Be Self-Employed?

HMRC uses three key tests to determine whether a construction worker should be classed as self-employed or employed:

✅ Control

• Does the worker decide when, where, and how they do the work?
• Can they refuse certain jobs?
• Are they responsible for their own training?

If the contractor dictates how the work is done, the worker is likely an employee, not self-employed.

✅ Financial Risk

• Does the worker provide their own materials, tools, or equipment?
• Do they have business insurance?
• Can they make a loss as well as a profit?

If the worker bears financial risk, they may qualify as self-employed.

✅ Substitution

• Can the worker send someone else to do the job in their place?
• Or are they personally required to do the work themselves?

If they can’t substitute someone else, they are more likely to be an employee.

What Happens If You Get It Wrong?

If HMRC finds that a worker has been incorrectly treated as self-employed, they will demand backdated PAYE tax, National Insurance Contributions (NICs), and penalties.

Here’s what businesses could face:

❌ PAYE & NIC Back Payments – Employers could be forced to pay all missing PAYE tax and NICs for misclassified workers. ❌ Penalties & Interest – HMRC applies fines and charges interest on late payments. ❌ Tax Investigations – If HMRC suspects payroll misclassification, they can launch a full tax inquiry. ❌ Legal Action – Repeated breaches of employment status rules could result in legal consequences.

How to Stay Compliant with CIS & Employment Rules

To avoid payroll headaches and HMRC penalties, follow these steps:

✅ Assess Employment Status Correctly – Use HMRC’s Check Employment Status for Tax (CEST) tool to confirm whether workers should be PAYE or CIS subcontractors. ✅ Deduct CIS Tax for Genuine Subcontractors – If a worker is self-employed under CIS, deduct 20% or 30% tax at source before paying them. ✅ Keep Accurate Records – Maintain proper records of contracts, invoices, and payments for all workers. ✅ Ensure PAYE Compliance for Employees – If a worker meets HMRC’s employment criteria, put them on PAYE payroll and handle tax correctly. ✅ Work With an Accountant – A construction accounting specialist ensures you comply with CIS, PAYE, and HMRC regulations.

The Bottom Line: Self-Employment in Construction Isn’t Always an Option

If you’re a contractor, you need to get worker classification right—or risk hefty tax bills and penalties. If you’re a worker, make sure you understand your employment rights and tax obligations before agreeing to self-employment status.

Get CIS & Payroll Compliance Right with Black & White Accounting

At Black & White Accounting, we help construction businesses stay compliant with CIS, payroll, and tax laws—ensuring you avoid fines while operating smoothly.

Not sure if your workers qualify for self-employment? Get in touch with our expert team today and let’s make sure your business is HMRC-ready!

Stay tuned for more Mythbusters blogs, where we continue to break down financial myths and help businesses like yours thrive with confidence.