Managing subcontractor payments as a UK general contractor
If you are running 20 to 40 subcontractors across an active project, you are also running a payment operation. Invoices arriving at different times in different formats, CIS deductions to calculate for each sub, and payments to settle across multiple bank accounts, all while managing the project itself.
Most SME general contractors are doing this across WhatsApp, email, and two or three separate banking apps. It works until it does not. This guide covers how to do it properly.
The hidden cost of how most GCs manage payments today
The average SME general contractor spends 16 hours per month managing subcontractor invoices and payments (Petl Pay internal research). That time goes on chasing subcontractors for invoices across WhatsApp and email threads, reconciling submissions that arrive in inconsistent formats, manually calculating CIS deductions for each sub, and running multiple bank transfers to settle.
On a project with 20 to 40 active subcontractors, a single payment run is not a 20-minute task. It is a half-day exercise, and it happens every month, across every active project simultaneously.
Step 1: Get subcontractor information right before work starts
Before the first invoice arrives, you need the following for every subcontractor:
- Full legal name and business address
- Unique Taxpayer Reference (UTR)
- CIS registration status, verified directly with HMRC
- Bank account details for payment
- A signed subcontract agreement with clear scope, rate, and payment terms
CIS status must be verified with HMRC before the first payment. If you pay before verifying and the deduction rate turns out to be wrong, the liability sits with you as the contractor.
Step 2: Standardise how subcontractors submit invoices
One of the most common sources of payment delay is inconsistent invoice submission. When subcontractors are sending invoices via WhatsApp images, email PDFs in varying formats, and occasional handwritten notes, reconciliation becomes a manual exercise in data extraction that introduces errors and delays settlement.
The fix is to standardise the submission process before work starts. Give every subcontractor a clear invoice template, or better, a structured way to log completed work directly that auto-generates an invoice. This removes format inconsistency, reduces back-and-forth, and means invoices arrive in a form you can act on immediately rather than needing to be chased and reformatted.
Step 3: Calculate CIS deductions correctly for every payment
CIS deduction rates:
- 20% for subcontractors registered with CIS
- 30% for subcontractors not registered with CIS
- 0% for subcontractors with gross payment status, verified by HMRC
Deductions apply to the labour element of the invoice only, not materials. If a sub invoices £5,000 for labour and £2,000 for materials, the deduction applies to the £5,000 only. Materials must be itemised separately on the invoice.
You must submit a CIS monthly return to HMRC by the 19th of each month, declaring all payments made and deductions taken. Late returns attract a £100 penalty for the first month, rising with each subsequent month missed.
Step 4: Set a payment schedule and issue the correct notices
Most subcontract disputes arise from unclear or inconsistently applied payment terms. Set a clear payment schedule at the start of every project, whether weekly, fortnightly, or monthly, and define the cut-off date for invoice submission.
Under the Construction Act, you are required to issue a payment notice within five days of the payment due date. If you intend to pay less than the notified sum, a pay less notice must be issued at least seven days before the final payment date. Missing these deadlines means the full notified sum is owed regardless of any dispute.
Step 5: Move payment off manual bank transfers
Running individual bank transfers for 20 to 40 subcontractors per project is the bottleneck most GCs accept as normal. It is not normal, it is just unresolved.
Open banking enables bank-to-bank payments that settle in seconds rather than the one to three business days of standard BACS. For GCs running multiple active projects, the ability to settle a full payment run in minutes rather than hours changes the operational picture significantly.
Petl Pay embeds open banking and stablecoin payment rails directly into project workflows. When a subcontractor's invoice is approved, payment is triggered immediately with CIS deductions calculated automatically and a full audit trail maintained per transaction. One client payment in, every subcontractor paid out. Learn more at petlpay.com.
Step 6: Maintain a clean audit trail for HMRC
Every payment to a subcontractor needs to be documented: gross amount, CIS deduction, net amount paid, and date. HMRC can request CIS records for up to three years after the tax year in question.
When payment records are spread across bank statements, email threads, and WhatsApp conversations, a CIS audit becomes a significant reconstruction exercise. Keeping everything in one place with a per-transaction record is not just good practice, it is your evidence trail if HMRC queries a return.
Frequently Asked Questions
How many subcontractors does the average UK general contractor manage per project?
For SME general contractors running projects in the £500k to £10m range, the average is between 20 and 40 active subcontractors per project depending on scope and complexity (Petl Pay internal research). On larger commercial projects this figure can be significantly higher.
What is the biggest source of delay in subcontractor payments?
Invoice management. When subcontractors submit invoices via WhatsApp and email in inconsistent formats, the reconciliation process before payment becomes the bottleneck. Standardising invoice submission before work starts removes the primary source of delay.
When do I need to verify a subcontractor's CIS status?
Before the first payment. Verification must be done via the HMRC CIS online service. If you pay before verifying and the rate turns out to be wrong, the liability for the shortfall sits with you as the contractor.
What happens if I miss a pay less notice deadline?
Under the Construction Act, missing a pay less notice deadline means the full notified sum is owed regardless of any dispute about the amount. Courts have consistently upheld this position. Getting notice timelines right matters.
Can I use open banking to pay multiple subcontractors at once?
Yes. Open banking enables batch bank-to-bank payments that settle in seconds. For GCs running multiple payment runs per month this removes the manual transfer bottleneck and provides a clean per-transaction audit trail for CIS purposes.
