Guide
Verify a subcontractor's CIS status
How to verify subcontractors before making payments under the Construction Industry Scheme. Contractors must verify every new subcontractor with HMRC to determine the correct deduction rate and avoid penalties.
Before you pay a subcontractor for construction work, you must verify their CIS status with HMRC. This tells you whether they are registered for the Construction Industry Scheme and what rate of tax to deduct from their payment.
Verification is not optional. If you pay a subcontractor without verifying them first, you will apply the wrong deduction rate and may face penalties from HMRC.
Why verification matters
The verification process serves two purposes:
- Determines the deduction rate - HMRC tells you whether to deduct 0%, 20%, or 30% from the subcontractor's payment
- Confirms the subcontractor exists - Verification checks that the subcontractor's details match HMRC records
Without verification, you must apply the highest rate (30%), which means your subcontractor receives less money and has to reclaim the difference through their tax return.
When to verify a subcontractor
You must verify a subcontractor in two situations:
- First payment - Before making your first payment to a new subcontractor, you must complete verification. Never pay without verifying first.
- After a gap - If the subcontractor has not appeared on any of your CIS monthly returns in the current tax year or the previous 2 tax years, you must verify them again before paying.
Once verified, a subcontractor remains valid as long as you continue to include them on at least one CIS return within a rolling period of the current plus previous 2 tax years.
Understanding verification results
When you verify a subcontractor, HMRC will return one of three results:
Registered - standard rate (20%)
This is the most common result. The subcontractor is registered for CIS and you must deduct 20% from the labour element of their payment. This is the standard rate for registered subcontractors without gross payment status.
Gross payment status (0%)
The subcontractor has been granted gross payment status by HMRC. You pay them the full amount with no deductions. They account for their own tax through Self Assessment or Corporation Tax.
Unregistered or unmatched (30%)
Either the subcontractor is not registered for CIS, or the details you provided do not match HMRC records. You must deduct 30% from the labour element. If verification failed because of mismatched details, ask the subcontractor to check their records with HMRC and verify again once corrected.
What happens if you do not verify
Failing to verify subcontractors before payment is a breach of CIS rules. HMRC expects contractors to complete verification for every new subcontractor and can impose penalties for non-compliance.
The consequences include:
- Incorrect deductions - Without verification, you must apply 30%. If the subcontractor should have had 20% or 0%, they lose money and may blame you
- Inaccurate CIS returns - Your monthly returns may contain errors if you have not verified subcontractors properly
- HMRC penalties - Repeated failures to follow CIS rules can result in penalties and increased scrutiny
- Record keeping failures - You will not have verification numbers to include on your monthly returns
Record keeping for verification
You must keep verification records for at least 3 years after the end of the tax year they relate to. HMRC can ask to see these records at any time.
What to keep
For each subcontractor you verify, retain:
- Subcontractor's name and business type (sole trader, partnership, or company)
- Unique Taxpayer Reference (UTR)
- National Insurance number (sole traders) or Company Registration Number (companies)
- Verification number from HMRC
- Date you completed verification
- Deduction rate confirmed by HMRC
How to store records
Keep records in a format you can produce if HMRC asks - either paper files or electronic records. Many contractors use accounting or CIS software that stores verification details automatically. If storing electronically, ensure you can access records for at least 3 years.
Verification for different business types
The information you need to verify a subcontractor depends on their business type. Details must match HMRC records exactly - even minor differences can cause verification to fail.
Sole trader
- Full name (as registered with HMRC)
- Unique Taxpayer Reference (UTR)
- National Insurance number
Partnership
- Partnership name
- Partnership UTR
- Name of one partner who is a registering partner
- That partner's UTR and National Insurance number
Limited company
- Company name (exactly as registered)
- Company UTR
- Companies House registration number
Tip: Ask subcontractors to provide their details in writing and confirm the exact format used on their HMRC records. Common issues include abbreviations (such as 'Ltd' versus 'Limited') or middle names.
Using commercial CIS software
The HMRC online service allows you to verify up to 50 subcontractors. If you work with more than 50, you must use commercial CIS software.
Benefits of commercial software include:
- Verify unlimited subcontractors
- Automatic integration with your accounts
- Storage of verification numbers and dates
- Alerts when re-verification is needed
- Direct submission of monthly returns
HMRC publishes a list of approved CIS software providers. Your accountant or bookkeeper may already use software that handles CIS verification.
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Gather subcontractor details before verification
Request the subcontractor's UTR, National Insurance number (or Company Registration Number for companies), and confirm the exact name registered with HMRC.
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Verify using the CIS online service
Sign in to the Government Gateway and use the CIS online service. Enter details exactly as the subcontractor provided them.
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Record the verification number
HMRC will provide a verification number. Record this along with the date and deduction rate for your CIS records.
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Apply the correct deduction rate
Use the rate HMRC confirms - 0% for gross, 20% for registered, or 30% for unregistered or unmatched.
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Include verification number on monthly returns
When you report payments to the subcontractor on your CIS monthly return, include the verification number.
What to do if verification fails
If HMRC cannot match the subcontractor's details, verification will fail and you will receive a 30% deduction instruction.
Steps to resolve
- Check the details you entered - Ensure you typed the name, UTR, and NI number exactly as the subcontractor provided them
- Ask the subcontractor to check their records - They should contact HMRC to confirm exactly what name and details are registered
- Verify again once corrected - After the subcontractor confirms their details match HMRC records, submit a new verification request
In the meantime, you must apply the 30% rate. If verification later succeeds at 20% or 0%, you cannot retrospectively change previous payments - the subcontractor reclaims the difference through their tax return.
Verification is mandatory for all CIS contractors
Every CIS contractor must verify subcontractors before first payment. This applies whether you are a main contractor, principal contractor, or deemed contractor (spending over 3 million per year on construction).
The verification requirement is set out in the Finance Act 2004 and CIS Regulations 2005. There is no exemption for small contractors or occasional payments.