CIS Subcontractor Verification: A Step-by-Step Guide for UK Contractors

Verifying a subcontractor under the Construction Industry Scheme is a non-negotiable step before making the first payment, yet it is one that many smaller contractors skip — either because they are unaware of the requirement or because the verification process feels like an additional administrative hurdle on top of an already demanding job. Skipping verification is costly: if HMRC later determines that you paid a subcontractor without verifying them and without deducting CIS at the correct rate, you may be held personally liable for the tax that should have been deducted.

Why Verification Is Mandatory

The duty to verify a subcontractor before making the first payment arises under HMRC's CIS regulations. The purpose of verification is twofold: first, to establish whether the subcontractor is registered under CIS at all, and second, to determine the correct deduction rate to apply. Without verification, a contractor has no reliable way to know whether to deduct at 20 per cent (registered), 30 per cent (unregistered), or zero per cent (gross payment status). HMRC's records are the definitive source for this information — a subcontractor's assurance that they are registered, or that they hold gross payment status, is not sufficient without independent verification through HMRC's system. If you pay without verifying and apply the wrong rate, HMRC may issue a determination notice requiring you to pay the difference between the tax you should have deducted and the tax you actually deducted, plus interest and potentially a penalty.

How to Verify a Subcontractor

Verification is carried out through HMRC's online CIS service or through compatible payroll or contractor software that has API access to HMRC's verification system. To verify a subcontractor, you will need their full name or company name, their Unique Taxpayer Reference, and for individual subcontractors, their National Insurance number. For partnership subcontractors, you will need the names and UTRs of the individual partners as well as the partnership's UTR. HMRC returns a verification number for each subcontractor and confirms the applicable deduction rate. The verification number should be retained in your records as evidence that you met your duty to verify. If the subcontractor cannot be matched in HMRC's records — perhaps because their name is registered differently, or because their UTR has been entered incorrectly — HMRC will return an unmatched result, and the 30 per cent deduction rate applies until the matter is resolved. In this situation, the subcontractor should contact HMRC to ensure their CIS registration details are correct.

Re-verification and Status Changes

Having verified a subcontractor once, you are not required to re-verify every time you make a payment to them — the verification remains valid. However, good practice suggests re-verifying a subcontractor at the start of each new tax year or at the start of each new contract engagement, since subcontractor status can change. A subcontractor who held gross payment status may have had it withdrawn by HMRC if they failed to maintain their compliance record, meaning that you should now be deducting at 20 per cent. Conversely, a subcontractor who was previously unverified may have registered since your last check, changing their rate from 30 per cent to 20 per cent. HMRC does not proactively notify contractors when a subcontractor's status changes, so the responsibility for checking rests with the contractor.

What a Compliant CIS Invoice Looks Like

A CIS invoice from a subcontractor to a contractor has specific features that distinguish it from a standard commercial invoice. The invoice should clearly state the subcontractor's name, address, UTR, and NI number (for individuals). It should separate the materials element of the charge from the labour element, since CIS deductions apply to labour only and not to the cost of materials. The net labour amount, the net materials amount, and the total amount before CIS deduction should all be stated explicitly. If the subcontractor is VAT registered, VAT should be charged on the full value of the supply (labour plus materials) and shown separately, since VAT is outside the scope of CIS. Where the Domestic Reverse Charge also applies, the invoice must also include the DRC statement and show no output VAT charge. At the bottom of the invoice, the CIS deduction should be calculated and shown, with the net amount payable stated clearly: total invoice value minus VAT (where DRC applies) minus CIS deduction equals the amount due.

Monthly CIS Returns and Deduction Statements

Contractors must file a monthly CIS return with HMRC by the nineteenth of the month following the tax month (which runs from the sixth to the fifth). The return lists each subcontractor paid during the month, the gross amount paid, the materials element, and the CIS tax deducted. The contractor must also provide each subcontractor with a CIS deduction statement for each payment made, showing the same information in a format suitable for the subcontractor to use when reconciling their tax position. The deduction statement must be provided by the nineteenth of the month following payment. Contractors who fail to file monthly returns on time or who file inaccurately are subject to a penalty regime: £100 for returns up to one month late, £200 for returns between one and two months late, and increasing penalties for more extended non-compliance. Contractors who operate on a small scale and make CIS payments only occasionally must still file a nil return for any month in which no CIS payments were made, or formally declare themselves inactive.

Gross Payment Status: Application and Implications

Gross payment status allows a subcontractor to receive full invoice payment without CIS deduction. For subcontractors who have significant input VAT to reclaim and whose effective tax rate under self assessment may be lower than the 20 per cent deduction rate, gross payment status eliminates the cash flow disadvantage of having tax deducted before it is actually due. Applying for gross payment status requires meeting HMRC's turnover, business use, and compliance tests. The compliance test is the most common reason for rejection: all tax obligations for the preceding twelve months must have been met on time. Once granted, gross payment status remains valid until HMRC removes it, which happens automatically when a compliance failure is detected. Subcontractors with gross payment status receive an HMRC certificate which should be shown to contractors before work begins.

How QuotCraft Manages CIS Invoicing and Returns

QuotCraft's CIS invoicing tools handle the complexity of constructing a compliant CIS invoice automatically. When you create an invoice for construction work, you can designate it as a CIS supply and specify the materials and labour breakdown. The platform calculates the CIS deduction based on the labour amount and the deduction rate associated with the client relationship — 0 per cent, 20 per cent, or 30 per cent — and formats the invoice with all the required fields including the UTR reference, the deduction calculation, and the net amount payable. QuotCraft stores verification numbers against each subcontractor record, making it easy to demonstrate compliance with the verification requirement. The monthly return data can be exported in a format compatible with HMRC's online submission tool, reducing the risk of transcription errors when filing. For contractors managing a mix of CIS subcontractors, standard suppliers, and employed workers, QuotCraft's project ledger keeps each type of payment clearly separated.