Verify a subcontractor's CIS status

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:

1. First payment - Before making your first payment to a new subcontractor, you must complete verification. Never pay without verifying first.
2. 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.

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

1. Check the details you entered - Ensure you typed the name, UTR, and NI number exactly as the subcontractor provided them
2. Ask the subcontractor to check their records - They should contact HMRC to confirm exactly what name and details are registered
3. 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.