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HMRC internal manual

Business Income Manual

Subcontractors: contents

Individuals who carry on business as subcontractors, and especially labour-only subcontractors, can present problems peculiar to this line of activity.

The first question you should consider is whether the employment status is correct. There may be advantages to the taxpayer in claiming to be self-employed or trading via a personal service company in circumstances where, on the facts, the subcontractor is employed. See BIM66205 for guidance in dealing with status issues.

If, in the circumstances, the subcontractor is self-employed or operates via a personal service company which is not subject to the deemed employment rules then BIM66210 onwards deals with the question of expenses which you can allow in computing chargeable trading profits.

You should deal with any expenditure not specifically referred to on normal lines.

If, on the facts, the subcontractor should be treated as an employee but has claimed to be self-employed on his tax return, you should refer to ESM0119 for guidance on how to proceed.

For guidance on the deemed employment rules for subcontractors operating via personal service companies (also known as the ‘IR35 rules’), see ESM3000.

This chapter contains the following: