Contractor – What is a contractor?

A contractor is a person or company that works on a contractual basis, negotiating deals with different clients to work on specific jobs or projects.

Learn more about domestic reverse charge invoices for CIS contractors.

Unlike employees, contractors don’t carry out regular work for a single employer. Instead, they work for a number of different clients as and when required. Contractors are therefore considered to be freelancers.

Contractor vs. subcontractors

Like contractors, subcontractors work on a freelance, contractual basis. However, there are a few important differences between contractors and subcontractors.

Firstly, contractors take on whole projects then hire subcontractors to work on specific aspects of that project. Contractors are therefore involved with bigger-picture tasks and project management, while subcontractors are responsible for specific, specialised tasks assigned by the contractor.

Secondly, contractors negotiate deals with the end client, whereas subcontractors usually only negotiate deals with contractors who have already secured the overall job or project.

Contractors under CIS

Contractual work exists in a number of different industries, but one of the most common industries for contractors is construction.

In the UK, there is a specific system for managing contractors and subcontractors that work in construction, which is known as the Construction Industry Scheme or CIS. Under CIS, contractors make deductions from subcontractors’ pay, which then go towards the subcontractors’ tax and National Insurance.

Registering as a CIS contractor

You’re required to register as a CIS contractor if you pay subcontractors to do construction work or if your business spends more than £1 million a year on construction.

You can register as a CIS contractor online. Contractors must register for CIS before hiring their first subcontractor.

Responsibilities of CIS contractors

Once you’ve registered as a contractor under CIS, you’ll be responsible for:

Verifying subcontractors, which involves checking whether the subcontractor is registered for CIS and finding out the rate you should deduct from their pay.
Paying your subcontractors and making the correct deductions from their pay.
Filing monthly CIS returns, which tell HMRC how much you’ve paid your subcontractors.
Paying any deductions to HMRC.

You’ll also need to keep full records of the payments you make to subcontractors, and the deductions you’ve taken from their pay. You need to keep these records for at least 6 years.

Contractors and invoicing

As a contractor, you’ll deal with both sales invoices, which are invoices that you issue to your clients, and purchase invoices, which are invoices you receive from your subcontractors.

The easiest way to create an invoice as a contractor is to use invoicing software.