CIS vs PAYE for Trades Teams (UK): A Plain-English Guide

There is a moment every growing trade business hits: the work is more than one pair of hands, and you need people. Immediately you meet the question that fills accountants' inboxes and site-cabin conversations alike: CIS vs PAYE. Subbies or employees. Day rates or a payroll. It sounds like a tax question, and partly it is, but it is really a question about what kind of business you are building. Here is the plain-English version of both regimes, the risk most people discover too late, and what each choice does to your week.

First, the disclaimer that is actually part of the advice: talk to your accountant before your first hire, not after. This post gives you the map. Your accountant gives you the route for your numbers.

PAYE, plainly

PAYE is employment. The person is on your payroll. You deduct their income tax and National Insurance from each payslip and send it to HMRC, and on top of their gross wage you pay employer's National Insurance, pension contributions under auto-enrolment, and holiday pay. They get employment rights: paid holiday, sick pay rules, notice, protection from unfair dismissal in time. You get obligations, and you also get something valuable that rarely makes the comparison spreadsheets: control. You set their hours. You set their rota. On a quiet Thursday you can send them to service the van, deep-clean the workshop or shadow you on a survey, because their time is yours to direct.

The money reality: an employee costs meaningfully more than their headline wage once employer's NI, pension and holiday are counted, and that cost runs every week whether the diary is full or not. That last clause is the whole game, and we will come back to it.

CIS, plainly

CIS is the Construction Industry Scheme, HMRC's regime for contractors paying subcontractors for construction work. The subbie is their own business. No payroll, no employer's NI, no holiday pay, no pension duty. Instead, when you pay them, you deduct a slice of the labour element of the invoice (materials they supplied are excluded) and send it to HMRC as an advance payment towards their tax and National Insurance.

The rates, per gov.uk: 20% if the subcontractor is registered for CIS, 30% if they are not, and 0% if they hold gross payment status, which HMRC grants to subcontractors who pass its turnover, compliance and business tests (for a sole trader, at least £30,000 of construction turnover, tax affairs in order, and a business bank account). You as the paying contractor must register with HMRC, verify each subbie, deduct at the right rate and file monthly returns.

The money reality: a subbie's day rate is usually higher than an employee's, sometimes strikingly so. But you pay only for days worked. No work, no cost. Flexibility is exactly what you are buying, and it is genuinely worth paying for when your workload swings.

The trap in the middle: a subbie worked like an employee

Now the part that catches real businesses. CIS is not a status you choose. It is a payment scheme, and being registered under it proves nothing about whether someone is genuinely self-employed. What matters is the reality of the working relationship, and HMRC looks straight through the paperwork at three things: control (do you decide how, when and where they work?), personal service (must they turn up personally, or can they send a substitute?), and mutuality of obligation (are you obliged to offer work, and are they obliged to take it?).

Picture the pattern: your "subbie" has been on your jobs five days a week for two years. Your van, your rota, your customers, your materials. He starts at 8 because you say so, cannot send anyone in his place, and has not invoiced another firm since he joined. On those facts, HMRC can decide he was an employee all along. The bill lands on you, not him: the PAYE tax and both sets of National Insurance that should have been paid, going back years, plus penalties and interest. For a small firm running two or three long-term subbies, that is the kind of letter that ends the business.

HMRC provides a free Check Employment Status for Tax tool (CEST) on gov.uk. Run it honestly for each engagement, save the determination, and keep it. If the answer says employment, believe it, because pretending otherwise does not change the rates you owe, only when you find out.

What each regime does to your rota

Here is the operational difference nobody mentions until you are living it.

Employees mean you own the diary problem. You can build a rota, guarantee coverage, promise customers a Tuesday slot with confidence, and take on service-plan work that needs the same faces returning on schedule. The price is that empty diary hours are now the most expensive thing in your business, because the wage runs regardless. An employer's real job becomes keeping paid hours full, which is why steady, plannable work like maintenance plans suddenly matters so much more once you employ (we wrote about selling service plans for exactly this reason).

Subbies mean you rent capacity, and it can say no. A subbie can decline the Tuesday job, finish another firm's contract first, or vanish to a better-paying site mid-month, and that independence is not a flaw, it is precisely the thing that keeps them legitimately self-employed. Build your customer promises on capacity you do not control and the promise is only as good as the subbie's other options that week. Worth saying plainly: if you find yourself wanting to put a subbie on a fixed weekly rota with guaranteed hours you direct, that is the moment you are describing an employee, in both the operational and the legal sense.

Most growing firms end up mixed: an employed core that carries the rota and the promises, plus trusted subbies for peaks and specialist work. That shape works, provided the subbies genuinely operate like businesses.

Doing the actual sums

When you sit down with the numbers, compare like with like. The employee's true daily cost is not the wage: it is wage plus employer's National Insurance plus pension plus the holiday you are funding, spread over the days actually worked. The subbie's true cost is not the day rate either: it is the day rate plus the days you needed cover and could not get it, priced at whatever those unfilled promises cost you in delayed jobs and unhappy customers. Run both against a realistic picture of how full you can keep a diary, not a hopeful one. A cheaper daily cost you cannot keep busy is dearer than an expensive one you can. Your accountant can put your real figures through this in an hour, which is the best hour you will spend on the decision.

The decision, framed honestly

• Steady, forecastable workload you must cover every week: PAYE core. You are buying control and reliability, and paying for it in fixed cost and admin.
• Lumpy, project-shaped workload: CIS subbies. You are buying flexibility, and paying for it in higher day rates and less control.
• Whatever the paperwork says, the working reality decides the status. Run CEST, keep the results, and price the risk of getting it wrong at "existential", because backdated PAYE plus penalties is exactly that.
• Then take the specific numbers to your accountant. The right answer depends on your margins, your pipeline and your appetite for admin, and no blog post knows those.

The wider legal side of taking someone on, contracts, right-to-work checks, insurance, is its own subject, and we wrote it up in how to hire workers for your trades business legally. Read both before you shake hands with anyone.

Where OptiTech Automation fits

One paragraph, because this is a compliance post, not a pitch. Once you have an employed team, the rota stops being a mental note and becomes machinery: who works when, who is on holiday, which jobs can be booked into whose day. OptiTech Automation runs that layer for trade teams, with customer bookings flowing into a rota you control and dispatch routing each job to the right person, so the expensive employed hours stay full. The team-side detail is on the software for trade teams page, and the broader walkthrough is in the guide. The honest limits: it is built around employed teams and their rotas rather than loose subbie networks, it is priced for teams (Standard covers up to 15 people on the tools), and no software makes a worker employed or self-employed. That is decided by the facts of the relationship and checked with your accountant, not by an app.

The one-line summary

PAYE buys control and owes certainty. CIS buys flexibility and owes vigilance. The expensive mistake is buying one while living the other, so check the reality against the label before HMRC does it for you.