Payroll for tradesmen and construction contractors UK.
What tradesmen, sole traders and construction contractors need for payroll — when PAYE applies, how CIS works alongside PAYE and what the monthly obligations actually are.
Payroll for tradesmen and construction contractors depends on business structure and how people are paid. A sole trader employing people needs PAYE payroll and RTI. A limited company director needs PAYE for their salary. Any contractor paying subcontractors for construction work needs CIS — subcontractor verification, deduction calculations, payment summaries and monthly HMRC returns. Many construction firms run both PAYE payroll and CIS simultaneously, as two separate but related monthly obligations.
Payroll for tradesmen: which obligations apply?
Business type
PAYE payroll required?
CIS required?
What Bookd handles
Self-employed sole trader, no employees
No
If paying subbies for construction
CIS only — from £149/month
Sole trader with employed staff
Yes
If paying subbies
Both
Limited company director (salary)
Yes
If paying subbies
Both, from £79/month
Construction firm: PAYE + subbies
Yes
Yes
Construction Payroll & CIS — from £299/month
The two monthly processes most construction firms run
1. PAYE payroll for employed staff
Employed workers — those on a contract of employment, working regular hours, using your tools and under your direction — are PAYE employees. Their income tax and National Insurance is deducted from their wages before payment and reported to HMRC via RTI on or before every payday.
For a construction firm, this typically covers permanent employees: a supervisor, a site manager, an admin person or a driver. Their payroll runs monthly or weekly. RTI is filed before every payment.
2. CIS for subcontractors
Subcontractors — self-employed individuals or companies paid for specific construction work — fall under CIS. Before paying them, the contractor must verify them with HMRC. Once verified, the correct deduction rate is applied to the labour element of their invoice.
Each month, the contractor must file a CIS monthly return by the 19th, listing every subcontractor paid that month and the deductions made. Statements must be issued to subcontractors showing what was deducted and paid to HMRC. These are the subcontractor's evidence for reclaiming excess deductions through Self Assessment.
Where construction payroll goes wrong
01
Paying subcontractors before verifying them
Applies the wrong deduction rate. Often 30% when 20% was correct — creates a difficult conversation with the sub.
02
Treating employed workers as subcontractors
HMRC treats employment status as a matter of fact, not choice. Workers with characteristics of employment cannot be moved to CIS to avoid employer NI.
03
Missing the CIS monthly return deadline
The 19th of each month. Even for a nil return. Late filing penalty starts at £100 and accumulates.
04
Not separating materials on invoices
CIS deductions apply to labour only. If the invoice doesn't separate materials, the contractor either over-deducts (sub complains) or under-deducts (HMRC query).
05
Assuming gross payment status without verifying
Just because a subcontractor says they're paid gross doesn't mean HMRC has confirmed it. Gross payment status must be verified every time.
What Bookd handles for construction firms and tradesmen
Bookd provides payroll and CIS support built specifically for construction firms and trades. Most construction clients run both PAYE and CIS — two separate HMRC obligations, one monthly process with Bookd.
Construction Payroll & CIS starts from £299 per month for a firm with PAYE employees and CIS subcontractors. CIS-only starts from £149 per month for smaller contractors with subcontractors but no employed staff. Per-subcontractor pricing is available from £9.50.
Free · No obligation
Construction firm or tradesman with payroll or CIS questions? A free check reviews your current setup and flags any issues.
A self-employed sole trader with no employees does not run payroll — they pay tax through Self Assessment. A sole trader who employs anyone must register as an employer and run PAYE payroll. A limited company trading as a builder, electrician or plumber must run payroll for any director taking a salary and for all employed staff.
CIS (Construction Industry Scheme) applies to trades working in the UK construction sector — builders, groundworkers, electricians, plumbers, roofers, scaffolders, landscapers doing construction-related work and similar. If you pay subcontractors for construction work, you are a CIS contractor and must verify, deduct and file monthly CIS returns.
Yes. This is one of the most common construction payroll arrangements. A construction firm might have three or four permanent employees on PAYE (supervisors, admin, driving) and use eight to ten CIS subcontractors on site. Both obligations run simultaneously — monthly PAYE payroll and monthly CIS return.
The standard CIS deduction rate for a verified, registered subcontractor is 20%, applied to the labour element of the payment after materials and VAT are separated. Subcontractors who cannot be verified through HMRC are deducted at 30%. Gross payment status (0% deduction) must be confirmed directly with HMRC — it is not assumed.
If a contractor fails to register for CIS when they should, HMRC can hold them liable for the full amount of CIS deductions they failed to make, plus interest and penalties. The fact that the subcontractor will eventually pay their own tax is not a defence — the contractor's obligation to deduct and pay HMRC is separate.
A limited company where the director takes no salary and operates entirely through dividends does not technically need PAYE payroll — but this arrangement should be reviewed by an accountant. Most directors who take even a nominal salary (£1,047/month) trigger PAYE registration and the monthly RTI obligation.