What is subcontracting?

Chris Andreou

May 26, 2021

subcontracting guide

Free Download: Limited Company Expenses Guide

Download Now ↓
Limited Company

Introduction

As an independent contractor, there may come a point in time where you need to consider subcontracting—you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.

Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?

What is subcontracting?

A subcontractor is a business or a person that undertakes work for a company as part of a larger project. In undertaking a contract from a contractor, subcontractors carry out work that the contractor can’t perform, but remains responsible for. 

A subcontractor provides his or her services under a contract for service. This is a legally binding agreement between a business and a self-employed individual.

Subcontractors aren’t a part of your business—you don’t manage or supervise them, provide instructions on how they should perform their work or have line management responsibilities over them. Subcontractors deliver the service to your or your client ‘as if they were you’. 

Subcontractors may be engaged for fixed-term contracts, task-based contracts with no specified end date or long-term assignments.

Subcontractor examples 

  • A digital marketing agency may engage a copywriter to perform the content and copywriting tasks as part of a larger project 
  • A contractor in the construction industry may hire an electrician to perform electrical wiring services as part of a building job
  • A designer may subcontract a logo design task to another graphic designer
  • A web designer may subcontractor programming tasks to a developer
A subcontractor pointing out an error on a piece of paper

Limited Company Expenses Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Limited Company Expenses Guide

Becoming a subcontractor

Perhaps you've experienced a slowdown in your work, or find that you've been getting the same type of projects and clients repeatedly.

If you're looking for a change, becoming a subcontractor can help open the door to other types of jobs you're interested in-such as larger-scale projects that you aren't typically able to land as an independent contractor.   

There are downsides to taking on subcontracting work, and you'll need to weigh the pros and cons depending on your situation. 

As a subcontractor, you might have to work at a lower rate than what you typically charge. Plus, if you're not credited for your work, you may not be able to include the project in your portfolio.

Yet, these factors may not be an issue at all for some contractors—perhaps the project offers a good learning opportunity, and could increase their chances of landing better-paying jobs down the line. 

If you've decided that this is something you want to move ahead with, here are a couple of tips to keep in mind: 

Do your research on contractors and companies you want to work with

Review their websites in detail, paying attention to testimonials they've received from past clients and projects they've included in their portfolios.

This will help you ascertain that they have the expertise, as well as the types of projects that you're looking to learn about and work on. It also helps to check out their LinkedIn profiles for testimonials from subcontractors, or other individuals whom they've worked with. 

Create detailed contracts

As your project progresses, disagreements may occur between you and your contractor about a variety of issues, such as the scope of your job or how the project should be executed.

To minimise uncertainty or instances of miscommunication, it's best to detail your agreement clearly in the contract. 

As a subcontractor, you may be paid only after your primary contractor has received payment—so we recommend indicating when and how you'll be paid in your contract.

It's best to specify a time frame in which you'll be paid. For example, you may request to be paid within seven days after your contractor has received payment from the client. 

Don’t jump at every opportunity

It can be tempting to say yes to every opportunity that comes your way, especially if you’re experiencing a lull period in your business. 

But not every project is a good fit, so it’s best to be selective and avoid over-committing. Here are a few questions that can help you figure out if an assignment is a good match: 

  • Are the project requirements a good fit with my skills?
  • Is the timeline realistic?
  • Does the project offer a long-term opportunity?
  • Does the contractor have positive reviews and a good hiring history?

Factor in extra time

Before you decide to take on a project, check in with the prime contractor about the following:

  • How much input will the prime contractor have into your work? If he or she wants to review your work in detail, you’ll need to factor in several days to a week. This ensures that you’ll have sufficient time to make changes, before your work is submitted to the end client. 
  • Is revision time accounted for? If the client requests for revisions, will the contractor extend your deadline to allow for revisions to be made? Or will you have to factor in additional time for revisions before confirming a deadline?

Get insured

Most clients and prime contractors will want to ascertain that you have an insurance policy in place before they engage you as a subcontractor.

Public liability insurance could be one of the most important covers you have. It covers the legal costs and compensation payments if a business is deemed to be responsible for injury or property damage to a contractor, client or member of the public.

Here’s an example: let’s say you’ve left equipment lying around, and as a result, someone trips over it and is injured. If a claim becomes a legal matter, the policy will cover the costs involved—including any compensation you need to pay.

Hiring a subcontractor

You may be offered a lucrative project, but you're having second thoughts because the scope of work is more than what you can manage on your own.

Here's when you can think about hiring a subcontractor, as it increases your capacity to take on projects that you couldn't have taken on as previously as an individual contractor. 

If this is an option you're considering, we've included a few helpful tips on hiring and managing subcontractors below:

Perform a background check on your subcontractor:

Before you enter into a job agreement with your contractor, make sure that you've performed a thorough background check.

Ask for references, and review their portfolio in to check that they have the skills and experience you require.

Be aware of the changes to your job role as a primary contractor:

A significant amount of your time will now be spent on project management and client management roles.

You'll need to keep your clients up to date on the progress, manage deadlines and handle any concerns or issues that may arise. Make sure that you take all of these into account when you provide a quote for the project.

Sign a subcontractor agreement:

A subcontractor agreement protects you from taking on liability for subcontractors you hire for your projects.

The contract will vary depending on the nature of your work agreement and industry, but should cover elements such as:

  • Project details: This covers details such as the project duration, timeline and scope of work.
  • Communication protocols
  • Payment details
  • Costs that you've agreed to cover
  • Non-disclosure clauses
  • Non-compete clauses
  • Dispute clauses
  • Terms for contract termination or modification

We've also linked up to a few subcontractor agreement templates that you can use or adapt:

Avoid micromanaging:

In a HBR article, Emergent Research founding partner Steve King and author Dan Pink share an important tip: it's important to give your subcontractors freedom. King states: "You shouldn’t have to manage the work product of a contractor. If you are, find another one."

Allow them flexibility when it comes to their schedules, and give them space to complete their work.

Offer feedback

Providing feedback doesn't have to be complicated or time-consuming.

It can be as simple as conducting a brief review after a project to run through what went well and what didn't, or sending through an email with a few bullet points on areas of improvement.

Limited Company Expenses Guide

What's Inside:

  • Allowable business expenses
  • Employee expenses
  • Travel expenses
  • Office & equipment expenses
  • Professional services expenses
  • General expenses
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Limited Company Expenses Guide

What's Inside:

  • Allowable business expenses
  • Employee expenses
  • Travel expenses
  • Office & equipment expenses
  • Professional services expenses
  • General expenses

Get Free Advice from an Accountant

Book a free 30 minute call with an accountant. We'll help walk through setting up your business, switching accountant or any of your tax queries. All our accounting packages come with a free 30 day trial.

what is contractor guide
Featured Article

What is a Contractor?

We'll explain what it means to be a contractor, the different types of contractor employment, contractor business structures and factors that identify a contractor.

Read more

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What is an independent contractor?

An independent contractor is an individual who is engaged in a work agreement with a company or entity as a non-employee.

Factors that identify an independent contractor are:

  • They have a greater degree of control over their work
  • They offer a special skill set
  • They are able to get a replacement
  • They aren't entitled to employment benefits
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What is a Limited Company?

Limited companies provide numerous benefits, from tax savings to limiting your liability.

But the first step is to understand what a limited company is exactly, and whether setting up such a company can help you achieve your goals. This article will clearly explain the pro's and con's so you can make an educated decision.

In a nutshell, a limited company is a private company that's a separate legal entity from its owner(s). For freelancers and contractors, a limited company is one of the three main business structures that you may use to run your business (the others being sole trader and umbrella companies).

In this article, we walk you through:

  • What a "separate legal entity" means
  • The different types of Limited Companies
  • The pros and cons of setting up a Limited Company
  • How to start a Limited Company
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Is a contractor self employed?

Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.

If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Employing contractors

There are a few steps you'll need to consider with hiring contractors. These include:

  • Sourcing for contractors
  • Assessing contractor CVs
  • Interviewing a contractor
  • Payments
  • Contract terms
  • Terminating a contract
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What is a contractor?

A contractor is a professional that provides skills and services to a specific client under set terms. The terms can be for a set number of hours, a certain time frame or duration of a project.

A contractor is responsible for their own dealings and has discretion over the work they carry out.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

19 Places to Find Contractor Jobs & Roles

When you get into contracting, it can get stressful when your project end date is just around the corner and you haven't secured your next role. This amps up even more once you finish a contract and you're looking for your next gig.

As a specialist contractor accounting business founded by contractors, one of the key questions we get asked is about where to find roles. So, we decided to compile a list of some of the best contractor job portals, platforms, recruiters and consultancies.

If you have anything else to add then please let us know at info@goforma.com.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What is a SIC code?

The SIC code is a five-digit Standard Industrial Classification code. These codes are used by government bodies and agencies to systematically identify and categorise the principal business activities of companies operating in the UK.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What is subcontracting?

As an independent contractor, there may come a point in time where you need to consider subcontracting-you might decide to take on work as a subcontractor, or hire a subcontractor for your projects.

Whichever option you're exploring, how do you decide if the benefits truly outweigh the cons? And are there important tips you need to keep in mind?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

How do I transfer/ change a company directors?

You can appoint a new director, terminate the appointment of a director or change the director's personal details online, or by downloading the relevant forms and submitting it to Companies House by post.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What are the different types of contractors?

There are different types of contractor jobs available across diverse sectors. Contractors may be hired to perform services such as:

  • Marketing
  • IT maintenance and support
  • Graphic design
  • Recruitment
  • Business development
  • Catering
  • Construction work
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What are my Limited Company Directors Responsibilities?

As the director of a limited company, your responsibilities include:

  • Your company must be registered at Companies House
  • Your company's annual accounts must be filed at Companies House
  • A Confirmation Statement must be submitted annually. This can be done online or via post. This is a filing requirement introduced in 2016 to replace the Annual Return (Form AR01).
  • Submit an annual Corporation Tax to HMRC. Any outstanding tax must be paid within nine months and one day of your company's year-end accounting.
  • Register for Self Assessment with HMRC, and submit your personal tax return each year.
  • If you have employees and are running the company payroll, you need to report your employees' payments and deductions to HMRC on or before your employees' payday. You need to pay what you owe to HMRC each month.
  • If your VAT taxable turnover exceeds the VAT threshold, you'll need to register for VAT and complete your VAT returns online at the end of every financial quarter.
  • Maintain proper company records.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Is a contractor an employee?

Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.

If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What are the advantages of contracting?

The advantages of contracting are:

  • Flexibility: Contractors have a lot more control over their work life often deciding when they work, where they work and how they work
  • Increased earnings: Contractors are often paid more due to their skillset and the flexible nature of their working relationships. Additionally, contractors who operate through their own limited company can benefit from tax efficiencies.
  • Greater development: Often working with multiple clients throughout their career, contractors are exposed to a lot of opportunities to develop their skills and build on their experience in their area of expertise.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Deciding between Sole Trader vs Limited Company vs Umbrella

If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.

As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:

  • Sole proprietorship
  • Limited company
  • Working through an umbrella company

It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics - and here's where our guide comes into the picture.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

How to Start Contracting Guide

  • What is a contractor
  • Types of contractors
  • Contractor business structures
  • Contractor accounting
  • Understanding IR35
  • Contractor insurance
  • Banking for contractors
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What are the differences between Directors, Shareholders & Employees?

Directors

  • Directors have the responsibility of running and managing a Limited company;
  • Directors are responsible for ensuring all company accounts are filed with HMRC and Companies House;
  • Directors must have board meetings to decide on company activities ‚- including taking a dividend.

Shareholders

  • Shareholders are not involved in the running and managing of the Limited company;
  • Shareholders are involved in some decisions, like the change of company name, however not day to day running;
  • Shareholders are entitled to take dividends from the company, as long as these can be justified from their role in the company.

Employees

  • Employees work for the Limited company and are employed. They will receive a monthly salary from the Limited company.
  • They are not part of any decision making process and do not have any rights to dividends.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

How to Become a Contractor

So, you're thinking of becoming a contractor.

There's probably one of three reasons driving this:

You've received a Job Offer

You've just received a job offer, and now need to decide on whether to set up a limited company, umbrella company or become a sole trader (or you may not have the choice in deciding).

You're in the right place.

This guide will walk you through the best company structure for you, accounting support, VAT, business services you need to consider and finding new opportunities.

You want to increase your pay

You'd like to increase your pay by switching from permanent roles to interim/ contractor roles.

Contracting can be very lucrative.

You'll need to be comfortable with a certain level of risk (short notice periods), increased monthly admin (as a Limited Company) and less benefits than being an employee (paid leave, sick days).

However, you'll earn more, get greater flexibility and hopefully grow a consulting business.

Project Flexibility

Getting multiple requests for your services? Amazing.

Setting yourself up as a contractor through a Limited Company means you can start expanding your client base rapidly and work on different projects a few days a week.

You can still set this up as a current PAYE employee of a company, and this can be a great stepping stone to launching your own business.

Let's talk about the right business structure for you.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What are the disadvantages of contracting?

The disadvantages of contracting are:

  • Uncertainty: Due to the flexible nature of their working relationships, contractors aren't guaranteed work after the end of assignment or project.
  • Responsibility: Not only is it the responsibility of the contractor to find work, they are also responsible for their own finances.
  • Employment rights: As a contractor, you generally wouldn't find yourself holding employment rights that permanent employees benefit from.
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

What do I need to do as a Company Director?

Your responsibilities as a limited company director include:

  • Your company must be registered at Companies House
  • Your company's annual accounts must be filed at Companies House
  • A Confirmation Statement must be submitted annually. This can be done online or via post. This is a filing requirement introduced in 2016 to replace the Annual Return (Form AR01).
  • Submit an annual Corporation Tax to HMRC. Any outstanding tax must be paid within nine months and one day of your company's year-end accounting.
  • Register for Self Assessment with HMRC, and submit your personal tax return each year.
  • If you have employees and are running the company payroll, you need to report your employees' payments and deductions to HMRC on or before your employees' payday. You need to pay what you owe to HMRC each month.
  • If your VAT taxable turnover exceeds the VAT threshold, you'll need to register for VAT and complete your VAT returns online at the end of every financial quarter.
  • Maintain proper company records
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Guide to employing or hiring contractors

You have an important project at hand, and you require a contractor's specialist knowledge to fill in the skill gap in your team. You're ready to hire-except that you're unfamiliar with the hiring process.

If this is your first time hiring a contractor, our article will guide you through the essentials.

We'll cover the following:

  • Sourcing for contractors
  • Assessing contractor CVs
  • Interviewing a contractor
  • Payments
  • Contract terms
  • Terminating a contract
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Limited Company Expenses Guide

Speak to an Accountant