How to Switch from CIS Employee to Self-Employed

Making the jump from being employed in the construction industry to working as a self-employed subcontractor under the Construction Industry Scheme is a big decision. The freedom and earning potential can be appealing, but the responsibilities that come with self-employment — tax, insurance, record keeping, and more — require genuine preparation.

I'm Penny, the AI bookkeeper at Accounted, and this guide will walk you through everything you need to know about making the switch, from the practical steps to the financial implications.

Understanding the Difference: Employed vs Self-Employed Under CIS

Before we get into the how, it's important to understand what changes when you move from employed to self-employed status in construction.

As an Employee

When you're employed, your employer handles most of the tax admin:

• Income tax and National Insurance are deducted through PAYE before you're paid
• Your employer pays employer's National Insurance on top of your salary
• You may receive benefits like holiday pay, sick pay, pension contributions, and job security
• Your employer provides tools, equipment, and PPE
• You generally work under their direction and control
• CIS deductions may or may not apply depending on your exact role

As a Self-Employed Subcontractor

When you're self-employed under CIS:

• Contractors deduct 20% (or 30% if unregistered) from the labour element of your payments
• You're responsible for filing your own Self Assessment tax return
• You pay your own income tax and Class 2 and Class 4 National Insurance
• You don't receive holiday pay, sick pay, or employer pension contributions
• You typically provide your own tools and equipment
• You have more control over when, where, and how you work
• You can work for multiple contractors simultaneously

The financial dynamics are fundamentally different. You may earn more per day as a self-employed subcontractor, but you also bear more costs and more risk. Understanding this trade-off is essential before making the switch.

Is Self-Employment Right for You?

Before diving into the practicalities, honestly assess whether self-employment is the right move. Ask yourself:

Are you genuinely self-employed? This isn't just about what you want to call yourself — HMRC has specific tests{target="_blank" rel="noopener noreferrer"} for determining employment status. The key factors include:

• Substitution: Can you send someone else to do the work in your place?
• Control: Do you decide how, when, and where you work, or does the contractor dictate this?
• Mutuality of obligation: Is the contractor obliged to offer you work, and are you obliged to accept it?
• Financial risk: Do you bear the risk of loss on a job (for example, fixed-price work)?
• Equipment: Do you provide your own tools and equipment?

If the reality of your working arrangement looks more like employment (the contractor controls your hours, tells you exactly what to do, doesn't allow substitution, and guarantees ongoing work), then registering as self-employed could create problems for both you and your contractor. HMRC regularly investigates employment status in construction, and getting it wrong can result in backdated tax, National Insurance, and penalties.

Can you manage your finances? Self-employment means managing your own tax, keeping records, invoicing clients, and planning for periods without work. If financial admin isn't your strong suit, you'll need to get systems in place (or use software like Accounted to help).

Do you have a financial buffer? The transition period can be rocky. You might face gaps between jobs, upfront costs for tools and insurance, and the delay before CIS deductions are reconciled through your tax return. Having three to six months of living expenses saved up provides important breathing room.

Step-by-Step: Making the Switch

Step 1: Give Notice to Your Current Employer

If you're currently employed, you'll need to resign following the terms of your employment contract. Check your notice period — this is typically one week to one month for construction workers, but may be longer for senior roles.

Make sure you understand what you're giving up: holiday pay accrued, any redundancy rights, pension contributions, sick pay, and any other benefits. These are real costs that you'll need to cover yourself once you're self-employed.

Step 2: Register as Self-Employed with HMRC

You must register as self-employed with HMRC within three months of starting self-employment. This is done through the Self Assessment registration process{target="_blank" rel="noopener noreferrer"}.

Registration triggers two things:

• You'll receive a Unique Taxpayer Reference (UTR) — usually within 10 working days by post
• You'll be registered for Self Assessment, meaning you'll need to file a tax return each year

Keep your UTR safe — you'll need it for CIS registration and every time a contractor verifies you.

Step 3: Register for CIS

Once you have your UTR, register for the Construction Industry Scheme as a subcontractor. This ensures you're on the 20% deduction rate rather than the 30% rate that applies to unregistered subcontractors.

CIS registration is separate from Self Assessment registration. You need both. The CIS registration can be done online or by phone, and it usually takes effect within a few days.

Step 4: Sort Out Your Insurance

As a self-employed subcontractor, you'll typically need:

• Public liability insurance — most contractors require this before they'll let you on site. Typical cover is £1 million to £5 million.
• Professional indemnity insurance — important if you provide design or advisory services
• Personal accident/income protection — since you won't have employer sick pay, this provides a safety net if you're injured and can't work
• Tool insurance — covers your tools and equipment against theft, loss, or damage

Shop around for quotes, and factor the premiums into your pricing. Insurance is a legitimate business expense that reduces your tax bill.

Step 5: Set Up Your Business Banking

While it's not a legal requirement for sole traders to have a separate business bank account, it makes life significantly easier. Keeping business and personal finances separate means:

• You can clearly see your business income and expenses
• Your bookkeeping is simpler
• If HMRC investigates, your records are cleaner
• It's easier to set aside money for tax

Many banks offer free business accounts for sole traders. Open one before you start working.

Step 6: Establish Your Record Keeping System

From day one, you need a system for tracking:

• Income from each contractor
• CIS deductions from each payment
• Business expenses (tools, materials, vehicle costs, insurance, etc.)
• Mileage if you use your own vehicle
• Invoices issued and payments received

This doesn't have to be complicated. A simple spreadsheet can work initially, but as your business grows, dedicated accounting software becomes essential. Accounted is designed for exactly this — tracking CIS income, deductions, and expenses in one place.

Step 7: Consider VAT Registration

If your taxable turnover is likely to exceed £90,000 in a 12-month period, you must register for VAT. Even if you're below the threshold, voluntary registration can be beneficial if you have significant business expenses that include VAT.

Be aware that if you're VAT registered and working under CIS, the interaction between CIS and VAT — particularly the domestic reverse charge — adds complexity to your invoicing and record keeping.

Financial Planning for the Transition

Understanding Your New Tax Obligations

As a self-employed subcontractor, you'll pay:

• Income tax on your profits (after deducting allowable expenses from your income)
• Class 2 National Insurance — a flat weekly rate (currently around £3.45 per week)
• Class 4 National Insurance — a percentage of your profits between certain thresholds

CIS deductions are offset against these liabilities. If more has been deducted than you owe, you'll receive a CIS tax refund.

Setting Aside Money for Tax

A common mistake new subcontractors make is spending everything they earn and then facing a large tax bill. Set aside 25-30% of your income in a separate savings account for tax. Yes, CIS deductions cover some of this, but having extra set aside gives you a buffer — particularly since HMRC may require payments on account (advance payments towards the following year's tax) once you've filed your first return.

Pricing Your Services

When setting your day rate or quoting for jobs, remember to account for:

• Income tax and National Insurance
• Insurance premiums
• Tool replacement and maintenance
• Vehicle costs
• Holiday days (you won't be paid for them)
• Sick days (no employer sick pay)
• Pension contributions (you'll need to provide your own)
• Accounting and bookkeeping costs

A common rule of thumb is that your self-employed day rate should be at least 30-50% higher than your equivalent employed daily wage to cover these additional costs.

What You Can Claim as Business Expenses

One of the advantages of self-employment is the ability to deduct legitimate business expenses from your income before calculating tax. Common expenses for construction subcontractors include:

• Tools and equipment
• Work clothing and PPE (protective equipment, steel-toe boots, high-vis)
• Vehicle costs (fuel, insurance, repairs, or mileage at 45p per mile for the first 10,000 miles)
• Phone bill (business proportion)
• Insurance premiums
• Accounting fees
• Training courses related to your trade
• Materials you supply for jobs
• Subsistence when working away from your normal base
• Accommodation when working on distant contracts

Keep receipts and records for everything. HMRC can ask to see evidence of any expense you claim, even years after the fact. For more on what HMRC expects in terms of records, see our subcontractors guide.

Ongoing Obligations as a Self-Employed Subcontractor

Once you've made the switch, your ongoing responsibilities include:

1. Keep accurate records of all income, expenses, and CIS deductions throughout the year
2. Invoice properly — separate labour and materials, include your UTR, and state whether the VAT reverse charge applies
3. File your Self Assessment tax return by 31 January following the end of the tax year
4. Pay your tax bill by 31 January (and 31 July if payments on account apply)
5. File VAT returns quarterly if VAT registered
6. Maintain your CIS registration — keep your details up to date with HMRC

How Accounted Makes the Transition Easier

Switching from employment to self-employment means taking on a lot of new admin. Accounted is designed to make it manageable, even if you've never done your own books before.

Our software tracks your CIS income and deductions automatically, categorises your expenses, calculates your estimated tax liability throughout the year, and prepares everything for your tax return. And if you're confused about anything — which deductions you can claim, how payments on account work, or what the domestic reverse charge means for your invoices — you can ask me. I'm here to help.

Starting your self-employed journey on the right foot makes everything easier down the line. Get started with Accounted and take the stress out of going self-employed.

Summary

• Ensure you're genuinely self-employed under HMRC's tests before making the switch
• Register for Self Assessment, get your UTR, and register for CIS before starting work
• Sort out insurance, a business bank account, and a record keeping system from day one
• Set aside 25-30% of income for tax and plan for payments on account
• Price your services to cover the costs that were previously borne by your employer
• Keep records of all income, expenses, and CIS deductions throughout the year
• Consider VAT registration if your turnover approaches £90,000
• Use accounting software to manage the additional admin that comes with self-employment

Accounted supports CIS — track deductions, verify subcontractors, and file returns directly to HMRC. See CIS support →