Following our previous guides on CIS registration, monthly returns, and deduction rates, let’s tackle a critical process: verifying subcontractor status. As a construction accountant, I’ve seen how proper verification can protect your business from HMRC penalties and ensure correct deduction rates.
Why Verification is Crucial
Verification is not optional – it’s a legal requirement that:
- Confirms the subcontractor’s tax status
- Determines the correct deduction rate
- Protects you from HMRC penalties
- Maintains CIS compliance
When to Verify Subcontractors
You must verify a subcontractor:
- Before their first payment
- If you haven’t paid them within the current or last two tax years
- When they change business structure (e.g., sole trader to limited company)
- If they start trading under a different name
Step-by-Step Verification Process
1. Gather Required Information
You’ll need the subcontractor’s:
- UTR (Unique Taxpayer Reference)
- Company registration number (for limited companies)
- National Insurance number (for sole traders)
- Business name or trading name
- Partners’ details (for partnerships)
2. Choose Your Verification Method
Online Verification
- Log into HMRC’s CIS Online Service
- Select ‘Verify a Subcontractor’
- Enter subcontractor details
- Save the verification reference number
Phone Verification
- Call HMRC’s CIS helpline
- Provide your own details for authentication
- Submit subcontractor information
- Note down the verification reference number
3. Record Keeping Requirements
Always maintain records of:
- Verification reference numbers
- Date of verification
- Deduction rate confirmed
- Subcontractor details used
- Copies of verification responses
Common Verification Challenges
1. Multiple Business Structures
If a subcontractor operates as both:
- Sole trader and limited company
- Partner and sole trader ➡️ Separate verifications required for each
2. Name Mismatches
- Must match HMRC records exactly
- Check for common issues:
- Trading names vs registered names
- Spelling variations
- Limited/Ltd differences
3. Invalid UTRs
- Ensure UTR is current
- Verify format (10 digits)
- Check against subcontractor’s documentation
- Request updated information if needed
Best Practices for Verification
1. Create a Verification Checklist
✓ Collect all required information upfront ✓ Verify before first payment ✓ Save verification reference number ✓ Document deduction rate ✓ Set review reminders
2. Implement a Verification System
- Use digital record-keeping
- Set up calendar reminders
- Create standardized forms
- Maintain verification database
3. Regular Reviews
- Check verification dates quarterly
- Monitor payment gaps
- Update subcontractor details
- Review business structure changes
Handling Failed Verifications
If verification fails:
- Double-check all information
- Confirm details with subcontractor
- Request updated documentation
- Apply 30% deduction rate if unresolved
Emergency Situations
When immediate verification is impossible:
- Document why normal verification failed
- Apply 30% deduction rate
- Complete verification ASAP
- Keep records of all attempts
Technology Solutions
Consider using:
- CIS-specific software
- Digital record-keeping systems
- Automated verification reminders
- Cloud-based documentation storage
Legal Responsibilities
Contractors must:
- Verify all subcontractors
- Apply correct deduction rates
- Keep verification records
- Report changes to HMRC
- Maintain data protection compliance
Penalties for Non-Compliance
Failing to verify can result in:
- Financial penalties
- Increased HMRC scrutiny
- Mandatory review of CIS procedures
- Potential criminal charges for serious breaches
Need More Help?
In our next post, we’ll cover “Recovering CIS Deductions: A Guide for Subcontractors“
Stay compliant and profitable,
