Guide
CIS: verifying subcontractors with HMRC
How to verify subcontractors under the Construction Industry Scheme before making payments. Covers the verification process, payment statuses, record-keeping requirements, and penalties for non-compliance.
As a contractor registered for the Construction Industry Scheme (CIS), you must verify every subcontractor with HMRC before making your first payment to them. Verification tells you what rate of CIS deduction to apply - or whether to pay them in full without deductions.
Failing to verify subcontractors is a compliance failure that can result in penalties, incorrect deductions, and problems with your monthly CIS returns.
When you must verify
You must verify a subcontractor:
- Before your first payment to them - this is mandatory, not optional
- When their details change - if they change trading name, business structure, or UTR
- After 2 tax years of no payments - verification expires if you have not paid them for 2 complete tax years
You can verify up to 14 days before making a payment. The verification remains valid as long as you continue to make regular payments to that subcontractor.
How to verify subcontractors
You need the following information from your subcontractor before verifying:
- Legal name - trading name if sole trader, or company name if limited
- Unique Taxpayer Reference (UTR) - their 10-digit HMRC reference
- National Insurance number - for sole traders and partners
- Company registration number - for limited companies
- Partnership UTR - if they are a partnership
If a subcontractor cannot provide their UTR, they cannot be verified and you must deduct at the higher 30% unmatched rate.
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Verify online (recommended)
Use HMRC's CIS online service through your Government Gateway account. Go to 'Verify a subcontractor' and enter their details. You will receive an instant response with their payment status and a verification reference number. This is the fastest and most reliable method.
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Verify by phone
Call the CIS Helpline on 0300 200 3210 (Monday to Friday, 8am to 6pm). You will need all the subcontractor's details ready. HMRC will give you the payment status and a verification reference number over the phone. Keep a written record of the call.
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Verify through payroll software
Many payroll and accounting software packages can verify subcontractors directly through HMRC's API. Check if your software supports CIS verification - this can save time if you have many subcontractors.
Understanding the 3 payment statuses
When you verify a subcontractor, HMRC will tell you one of three payment statuses. Each status determines how much you deduct from their payments:
- Gross payment status
- 0% deduction - pay the full amount. Subcontractor has applied for and been granted gross payment status
- Net payment status (registered)
- 20% deduction from labour costs. Standard rate for registered subcontractors
- Unmatched (not verified)
- 30% deduction from labour costs. Applies when subcontractor cannot be matched to HMRC records
Gross payment status (0% deduction)
Some subcontractors receive payments without deductions because they have gross payment status. HMRC grants this to subcontractors who pass strict tests:
- Business test - turnover of at least £30,000 (sole traders) or £100,000 (companies) in the last 12 months
- Compliance test - all tax returns filed on time, no tax debts, no serious compliance failures
If a subcontractor tells you they have gross payment status, you must still verify them with HMRC. Do not rely on their word alone - HMRC's verification will confirm whether they genuinely have this status.
Net payment status (20% deduction)
Most registered subcontractors are on net payment status. You deduct 20% from the labour element of their invoice and pay this to HMRC as an advance against their tax bill.
The deduction applies only to labour costs, not materials. If an invoice includes both, you must identify the labour portion and deduct 20% from that amount only.
Unmatched status (30% deduction)
A subcontractor is unmatched if HMRC cannot find them in their records. This happens when:
- They are not registered for CIS
- The details you provided do not match HMRC's records (wrong UTR, name mismatch)
- They have recently changed their business structure
If a subcontractor is unmatched, you must deduct 30% from their labour costs. Encourage them to register for CIS or check their details with HMRC to reduce the deduction rate to 20%.
Verification reference numbers
When you verify a subcontractor, HMRC gives you a verification reference number. This is your proof that you verified them correctly.
You must record this number and keep it with your CIS records. If HMRC queries your deductions, the verification reference proves you followed the correct process.
Important: If you cannot produce a verification reference, HMRC may treat your deductions as incorrect, even if you applied the right rate. Always keep these references safe.
Record-keeping requirements
You must keep CIS verification records for at least 3 years after the end of the tax year they relate to. HMRC can inspect these records at any time.
Your records must include:
- Subcontractor details - name, UTR, National Insurance number or company registration number
- Verification date - when you verified them with HMRC
- Verification reference number - the reference HMRC gave you
- Payment status - gross, net, or unmatched at the time of verification
- Payment records - gross amount, materials, labour, CIS deduction, net payment
- Deduction statements - copies of statements given to subcontractors
Keep these records organised and accessible. Digital records are acceptable as long as you can produce them on request.
Penalties for not verifying
Failing to verify subcontractors has serious consequences:
- Incorrect deduction penalty
- HMRC can charge you for underpaid tax if you applied the wrong rate because you did not verify
- Record-keeping failure
- Penalty of up to £3,000 for failing to keep proper CIS records including verification records
- Compliance check consequences
- HMRC may expand their investigation if they find verification failures during a compliance check
If you discover you have not verified a subcontractor, verify them immediately before your next payment. For past payments made without verification, you should review whether the correct deduction rate was applied and consider whether to make a voluntary disclosure to HMRC.
Common verification problems and solutions
Subcontractor comes back as "unmatched"
First, check you entered their details correctly - a single digit wrong in the UTR will cause a mismatch. If details are correct, ask the subcontractor to:
- Check their UTR on correspondence from HMRC
- Register for CIS if they have not already done so
- Contact HMRC if their business structure has recently changed
Until they are matched, you must deduct at 30%.
Subcontractor disputes the deduction rate
If a subcontractor believes they should have a different status (e.g., they claim gross payment status but your verification shows net), provide them with evidence of your verification. They should contact HMRC directly to resolve the discrepancy - this is not your responsibility to fix.
Previous contractor's verification
You cannot rely on verification carried out by another contractor. Each contractor must verify subcontractors for themselves. If you take over a project with existing subcontractors, you must verify each one before you make payments to them.