What is Subcontracting: Definition and Process

PHS Team

30 Jul, 2025

Subcontracting is when a business hires another person or company to do part of a job or project. It’s a common way for companies to get help from specialists, save time, and manage large workloads. For example, a construction company might subcontract the electrical work to an electrician. This lets each team focus on what they do best. Subcontracting is used in many industries, like construction, IT, and manufacturing. It can help businesses grow faster and finish projects more efficiently. But to make it work well, it’s important to choose the right subcontractor and have clear agreements.

In this blog, we’ll explain what subcontracting is, why businesses use it, the pros and cons, and how to manage it the right way.

What is Subcontracting?

Sometimes, businesses bring in outside help to get specific parts of a job done. This is called subcontracting, where one company hires experts to handle certain tasks. This happens because the subcontractor has special skills, experience, or resources that the main contractor needs to finish the job properly.

How Does Subcontracting Work?

The subcontractor works under a contract that clearly states the tasks they will do, how much they will be paid, and their responsibilities. This way, the main contractor can share the workload, get expert help, and keep the project running smoothly.

Here’s how it works:

• The main contractor takes charge of the whole project.
• They hand over specific jobs, like plumbing or wiring, to subcontractors.
• They find subcontractors who know their trade well.
• Both sides agree on the work, price, and deadlines.
• The subcontractor finishes the job and keeps the contractor updated.
• The contractor checks the work and arranges payment.
• The main contractor remains responsible for completing the entire project.

Legal Definition of Subcontracting 

According to law and HMRC guidance, a subcontractor is someone who agrees to do work for another business (the contractor) as part of a bigger project, even if they hire others to help.

Common Industries That Use Subcontracting

Subcontracting is used across many industries where specific skills or extra help are needed for certain tasks. It allows businesses to focus on their main work while bringing in experts for specialised jobs.

Common industries that use subcontracting:

• Construction – For jobs like plumbing, electrical work, and painting.
• IT – For software development and technical support.
• Manufacturing – For parts assembly or quality checks.
• Event Planning – For catering, photography, and lighting.
• Logistics – For deliveries and warehousing.
• Creative Services – For design and content writing.
• Healthcare – For temporary staff like locum doctors.
• Professional Services – For accountants, consultants, and engineers.

Why Do Businesses Use Subcontracting?

Subcontracting helps businesses get extra help when they need it. It cuts costs, brings in specialist skills, and lets companies focus on what they do best.

Subcontracting allows businesses to tap into specialist skills and equipment without expanding their in-house team. It improves overall efficiency by keeping internal teams focused on core operations, offers flexible staffing options, and helps manage costs by paying only for the work required. It also reduces risk by distributing responsibilities and easing pressure during high-demand periods.

Disadvantages of Subcontracting

While subcontracting offers many benefits, Subcontracting comes with its own set of challenges. Maintaining consistent quality can be difficult when tasks are handled externally. It may lead to less stability in workloads and create communication gaps that impact project timelines. 

Businesses have less control over subcontracted work, which can result in hidden costs or delays. There's also a risk of overdependence if a subcontractor underperforms or withdraws. Additionally, subcontractors don’t receive employee benefits, and managing their own taxes and admin can be complex.

Tax and the Construction Industry Scheme (CIS)

In construction, contractors register with HMRC’s Construction Industry Scheme (CIS). They take tax from payments to subcontractors and pass it on to HMRC.

Registered subcontractors usually have 20% tax deducted, while unregistered ones face higher rates up to 30%. Some subcontractors can apply to get paid without deductions if they meet certain HMRC rules. Tax rules can differ depending on whether the subcontractor is a sole trader, in a partnership, or a limited company.

Difference Between Contractor and Subcontractor

The difference between a contractor and a subcontractor is how they relate to the client. A contractor is hired directly by the client to manage a whole project, while a subcontractor is hired by the contractor to handle specific tasks within that project.

Here's a more detailed breakdown:

Conclusion

Knowing how subcontracting works helps contractors and businesses manage projects better, get expert help, and keep costs under control while staying within the law. Make sure to have clear contracts, follow tax rules like CIS, and keep good records. Contact us today to see how we can support you with subcontracting and tax advice.

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