You verify a subcontractor with HMRC before you pay them for the first time. HMRC comes back with the rate you deduct at, and that answer is what protects you.
Pay first and verify later, and if the rate turns out to be 30% when you guessed 20%, the missing 10% is yours. You have already handed that money to the subcontractor. Now you pay it again to HMRC.
When you have to verify
Two triggers:
- Before the first payment to any new subcontractor.
- Again if you have not included them on a CIS return in the current tax year or either of the two before it.
The second one is the one that gets missed. A subcontractor you used regularly in 2022, went quiet, and have just called back in needs verifying again. Their status may have changed while they were away, and the last verification you hold is out of date.
What you need to hand
Verification fails on a typo more often than on anything real, so get the details from a document rather than from memory.
Sole trader: name, Unique Taxpayer Reference, and National Insurance number.
Limited company: company name, company UTR, and company registration number.
Partnership: the partner’s details plus the partnership name and partnership UTR.
You also need your own UTR, Accounts Office reference and PAYE reference to make the request.
What comes back
HMRC gives you one of three answers, and a verification number.
| Result | What you deduct |
|---|---|
| Registered for payment under deduction | 20% of labour |
| Registered for gross payment | Nothing |
| Not matched to HMRC’s records | 30% of labour |
The verification number is the same for everyone you verify in a given period, except where the subcontractor came back unmatched. Those get a number with letters on the end, unique to that subcontractor, and that is the number that has to go on your monthly return against their entry.
Keep every verification result. If HMRC queries a deduction two years later, the verification is the evidence that you deducted what they told you to.
When a subcontractor comes back unmatched
Do not assume it is wrong and pay them at 20% anyway. That is the mistake that costs money.
Work through it in this order:
- Check the UTR digit by digit against a document, not against a text message.
- Check you have the right entity. People give you their personal UTR when the invoice comes from their limited company.
- Check the name matches HMRC’s record rather than the trading name on the van.
- If it still fails, tell them. They may not be registered, or may have registered under a different structure.
Until it matches, you deduct at 30% and you record the unmatched verification number. If they register afterwards, you re-verify, and the rate changes from that point forward rather than retrospectively.
Where the liability actually lands
Most of the CIS liabilities we pick up on new clients start in the same place. A payment made before a verification, on an assumed rate.
The subcontractor has the money. HMRC wants the deduction. Nobody is coming back to the subcontractor for it on your behalf, so the shortfall is yours, and it comes with penalties and interest.
Verifying takes about two minutes. It is the cheapest control in the whole scheme.
How to verify
Through the HMRC CIS online service with your Government Gateway login, or through commercial CIS software that submits the request for you. Software is worth it once you are running more than a handful of subcontractors, because it keeps the verification results against the subcontractor record and puts the right number on the return automatically.
There is a phone route as well, which is useful when the online service will not match somebody you are sure about.
Questions we get asked
What is CIS verification?
Asking HMRC what rate to deduct from a subcontractor before you pay them. HMRC checks their CIS registration and returns 0%, 20% or 30%, plus a verification number.
How do I verify a subcontractor?
Through the HMRC CIS online service or CIS software. You supply your own PAYE and UTR details plus the subcontractor’s name, UTR and either their National Insurance number or company registration number.
What is a CIS verification number?
The reference HMRC gives you for a verification request. It starts with a V followed by ten digits. Where a subcontractor is unmatched, letters are added on the end and that number has to appear on your monthly return against them.
How long does a CIS verification last?
You do not need to verify again while you are including the subcontractor on returns. Verify again if they have not appeared on a return in the current tax year or the previous two.
Do I need to verify a subcontractor with gross payment status?
Yes. Verification is how you find out they have it, and it is how you evidence paying them without deduction. Their status can also be taken away, which you would only find out on re-verification.
What happens if I pay a subcontractor without verifying?
If you deducted less than you should have, HMRC recovers the shortfall from you, with penalties and interest. The money has already gone to the subcontractor, so you pay it twice.
If you want this off your desk
Verification, deductions, monthly returns and statements are all part of what we run for construction clients. The point is not that it is difficult. It is that it has to happen every time, before every first payment, and it only takes one miss.
Have a look at how we handle CIS, or book a call and we will check your last twelve months for unverified payments.
If you are verifying a new subcontractor most weeks, the admin is past the point where one person should be carrying it. There is more on that here: accountants for contractors with a large subcontractor base.