How to Verify CIS Subcontractors: A Foolproof Guide for UK Builders

How to Verify a Subcontractor Step-by-Step

Once you've gathered all necessary information, it's time to proceed with the actual verification process. The UK government provides multiple methods to verify CIS subcontractors, allowing you to choose the option that best fits your business needs.

Using the HMRC CIS online service

The most straightforward way to verify a subcontractor is through HMRC's free online CIS service:

1. Log into your HMRC business tax account
2. Navigate to the CIS section and select 'Verify subcontractors'
3. Enter your contractor details (UTR, accounts office reference, employer reference)
4. Input the subcontractor information you've collected
5. Confirm that a contract has been agreed or a tender formally accepted
6. Submit the verification request

After submission, HMRC will instantly check their records and provide you with a verification reference number. This number always starts with 'V' followed by 10 digits (such as V0004528765). The system will simultaneously inform you which deduction rate to apply: 0% (gross payment status), 20% (standard rate), or 30% (higher rate).

Remember to record this verification number, particularly for subcontractors subject to the higher rate deduction. You'll need to include this number on monthly returns and payment statements.

Using commercial software

For contractors managing more than 50 subcontractors, HMRC requires the use of commercial CIS software. This alternative offers several advantages:

Firstly, commercial software allows bulk verification, saving considerable time when dealing with numerous subcontractors. Moreover, these systems often integrate with your accounting software, streamlining both verification and payment processes.

To use commercial CIS software:

• Purchase a compatible programme from an approved provider
• Set up your contractor details within the system
• Enter subcontractor information either individually or via bulk upload
• Submit verification requests through the software's interface

The software communicates directly with HMRC's systems, returning the same verification information as the online service but in a format designed for larger-scale operations.

Using an accountant or agent

Many contractors opt to delegate verification responsibilities to accountants or agents. This third option requires specific preparations:

Your accountant needs proper authorisation to verify subcontractors on your behalf. Without this extra level of authorisation, the Government Transaction Engine will reject verification attempts even if they can file CIS300 monthly returns.

When working with an agent:

• Ensure they have agent credentials specifically for CIS verification
• Provide them with complete subcontractor information
• Confirm they have your written authority to act on your behalf

Some accounting platforms like Clear Books offer features that allow agents to verify subcontractors using their own credentials after enabling the appropriate settings on client accounts.

Regardless of which method you choose, verification must be completed before making your first payment to a new subcontractor. This step ensures compliance with HMRC regulations and determines the correct tax deduction rate to apply to payments.

What Happens After Verification

Following the verification process, HMRC provides vital information that determines how you'll pay your subcontractors. The system doesn't simply confirm registration status—it establishes the tax framework for your working relationship.

Understanding the verification number

After verifying a subcontractor, HMRC issues a verification reference number that always begins with 'V' followed by 10 digits (for example, V1230122604) ^[8]. This number serves as your proof that you've conducted proper verification and are deducting the correct amount of tax ^[8].

If you verify multiple subcontractors simultaneously, HMRC will provide the same verification number for all verifications completed in that session ^[3].

Keep this number in your records, as it confirms you've met your legal obligation to verify CIS subcontractor status. This verification remains valid for two tax years, after which you'll need to re-verify if you haven't paid the subcontractor during that period ^[9].

How to apply the correct tax deduction

Based on HMRC's verification response, you must apply one of three possible deduction rates:

• 0% - Subcontractor has gross payment status (no deductions)
• 20% - Registered subcontractor at standard rate
• 30% - Unregistered or unverified subcontractor ^[3]

To calculate the deduction correctly:

1. Start with the gross amount of the subcontractor's invoice
2. Subtract VAT if applicable
3. Deduct the cost of materials, equipment hire, and fuel (except for travel)
4. Apply the appropriate deduction percentage to the remaining amount ^[10]

This calculation yields the net amount payable to the subcontractor. The deducted amount must be forwarded to HMRC as an advance payment towards the subcontractor's tax and National Insurance ^[10].

After making payments, you must provide the subcontractor with a payment and deduction statement within 14 days of the end of each tax month ^[10]. These statements help subcontractors track deductions and calculate their tax position.

What to do if the rate seems wrong

Occasionally, the verification process may return an unexpected deduction rate. If this happens, first check all the information you've submitted to ensure it matches exactly what the subcontractor provided to HMRC when they registered ^[3].

Common reasons for unexpected rates:

• Incorrect UTR or other information provided
• Subcontractor's status has changed
• HMRC system issues (which do happen periodically) ^[11]

If you believe there's an error, advise the subcontractor to contact HMRC directly ^[8]. As a contractor, you must apply whatever rate HMRC specifies during verification, regardless of what you believe the correct rate should be ^[8].

For limited companies mistakenly verified using a director's UTR instead of the company's UTR, the system will return an "unrecognised" status requiring 30% deductions ^[11]. In such cases, re-verification with correct details is necessary.

Always inform subcontractors about their verification status before making payments, giving them an opportunity to resolve any issues with HMRC if necessary ^[8].

Keeping Subcontractor Status Up to Date

Maintaining proper CIS verification status is an ongoing process, not merely a one-time task. Even after initial verification, HMRC requires contractors to stay vigilant about the status of their subcontractors.

When re-verification is needed

Re-verification becomes necessary under several specific circumstances:

• When you haven't paid or included a subcontractor on a CIS return in the current or previous two tax years ^[6]
• If a subcontractor changes their business structure (e.g., from sole trader to limited company) ^[4]
• When you suspect their CIS status might have changed ^[4]

The two-year rule is straightforward—if you verified a subcontractor and paid them regularly, then stopped using their services for three years, you must re-verify them before making any new payments ^[4].

How HMRC notifies changes

HMRC actively communicates changes in subcontractor status to both parties involved:

When a subcontractor's status changes from gross payment to payment under deduction, HMRC sends written notification to the subcontractor with a 90-day notice period, allowing time for appeals ^[12].

Subsequently, HMRC contacts all contractors who have verified or used that subcontractor in the current or previous two tax years, providing 35 days' notice of the change ^[12]. After this date, you must apply the new deduction rate.

Since April 2024, HMRC has increased oversight on gross payment status and may immediately revoke it if there are reasonable suspicions of tax non-compliance ^[3].

Avoiding penalties through regular checks

To prevent CIS-related penalties:

• Monitor subcontractor payment patterns—flag those approaching the two-year re-verification threshold
• Respond promptly to HMRC notifications about status changes
• Keep comprehensive records of all verification numbers and dates
• Consider making an "inactivity request" if you temporarily stop using subcontractors—this lasts six months ^[13]

Remember to tell HMRC if your own details change, such as business address, structure changes, or if you temporarily stop using subcontractors ^[13].

When using online verification systems, watch for warning indicators—many platforms display orange warning circles or similar alerts when re-verification is needed ^[14].

Maintaining accurate verification status protects both parties—contractors avoid penalties for incorrect deductions, whereas subcontractors receive the correct payment amounts without unnecessary tax withholding.

Conclusion

Verifying CIS subcontractors properly represents far more than a bureaucratic exercise—it serves as your first line of defence against HMRC penalties and compliance issues. Throughout this guide, we've explored the entire verification journey, from understanding the basics to maintaining accurate records over time.

First and foremost, remember that verification determines which tax deduction rate applies to your subcontractors: 0%, 20%, or 30%. Applying incorrect rates can result in significant financial consequences for both parties. Additionally, the verification process requires specific information based on whether your subcontractor operates as a sole trader, partnership, or limited company.

The online HMRC CIS service offers the most straightforward verification method for most contractors. Nevertheless, commercial software or accountant services might better suit your needs depending on your business size and subcontractor volume.

After verification, you must diligently track verification numbers and deduction rates. Furthermore, you should monitor when re-verification becomes necessary—particularly when you haven't paid a subcontractor for an extended period or their business structure changes.

Altogether, proper CIS verification creates a foundation for smooth contractor-subcontractor relationships. Therefore, establishing robust verification protocols within your construction business isn't just about compliance—it's about building trust, maintaining financial stability, and ensuring project continuity.

Remember that HMRC regularly updates CIS regulations. Consequently, staying informed about these changes and implementing them promptly will help you avoid unnecessary penalties and maintain good standing with both tax authorities and your valued subcontractors.