CIS Verification: How to Verify a Subcontractor

Before a contractor pays a new subcontractor under the Construction Industry Scheme, they must verify that subcontractor with HMRC. HMRC replies with the rate to deduct from the labour part of the payment: nothing, 20% or 30%. Verification is done online in a few minutes, but skipping it or getting it wrong leaves the contractor liable for the shortfall. This guide explains when to verify, what you need, and what to do with the result.

Key takeaways

• Verify before the first payment, not after.
• You do not need to re-verify someone you have included on a return in the current or previous two tax years.
• HMRC gives one of three outcomes: gross, 20% or 30%.
• Deductions apply to labour, not to the cost of materials or to VAT.
• Keep the verification reference number with your records.

What is CIS verification?

Under the Construction Industry Scheme (CIS), contractors deduct money from payments to subcontractors and pass it to HMRC as an advance towards the subcontractor's tax and National Insurance. The amount to deduct depends on the subcontractor's status with HMRC, and the contractor finds that out by verifying them. HMRC's instructions are on GOV.UK under verify subcontractors.

Verification is the contractor's job. A subcontractor cannot verify themselves for you, and a registration letter they show you is not a substitute.

Who counts as a contractor?

You are a contractor for CIS if you pay subcontractors for construction work. That obviously includes builders and developers, but it also catches many subcontractors who pass work on to others. A plasterer who brings in a labourer for a job and pays them is a contractor for that payment, and must register as one before taking anyone on. The full list of duties is in the GOV.UK guide to what you must do as a CIS contractor.

Before you verify: check employment status

CIS only applies to people who are self-employed for the work in question. Before treating someone as a subcontractor, you must consider whether the terms of the engagement actually make them an employee. If they do, CIS is the wrong system and you should be operating PAYE. This is a judgement about how the work is done in practice, not about what either of you would prefer, and the contractor is responsible for getting it right.

When you must verify, and when you need not

• Must verify: a subcontractor you have not used before.
• Must verify: a subcontractor you have used before, but have not included on a monthly return in the current tax year or the two before it.
• No need to verify: a subcontractor you have included on a return within that period. Carry on using the rate you already hold unless HMRC tells you it has changed.

The tax year for CIS runs from 6 April to 5 April. If in doubt, verify. It costs nothing and removes the risk.

What you need

From your own records:

• Your Unique Taxpayer Reference (UTR).
• Your Accounts Office reference.
• Your employer reference.

From the subcontractor, exactly as registered with HMRC:

• Sole trader: name, UTR and National Insurance number.
• Limited company: company name, company UTR and company registration number.
• Partnership: the partnership's trading name and UTR, plus the nominated partner's name and their UTR or National Insurance number.

Collect these in writing when you agree the work. Small differences, such as a trading name where HMRC holds a personal name, are the most common reason for a failed match.

The three possible outcomes

Our guide to CIS deduction rates explains each in more depth. If a subcontractor is unhappy at being put on 30%, the fix is in their hands. Point them to our CIS subcontractor registration guide.

Step by step: verifying a subcontractor

1. Register as a contractor with HMRC if you have not already. You cannot verify until this is done.
2. Confirm the engagement is self-employment and keep a note of why.
3. Collect the subcontractor's details in writing.
4. Verify online using the HMRC CIS online service or commercial CIS software.
5. Record the result. Note the rate and the verification reference number HMRC gives you. Subcontractors verified at the same time share one reference.
6. If the result is 30%, give the subcontractor the full reference, including the letters at the end. They may need it later to claim credit for the deductions.
7. Set the rate in your payment process so that every payment to that subcontractor uses it.
8. Pay, deduct and give a statement. Each subcontractor who has had a deduction must get a written payment and deduction statement within 14 days of the end of each tax month.
9. Include them on your monthly return. Returns are due by the 19th of each month. See CIS monthly return deadlines and the GOV.UK page on how to file your monthly returns.

Worked example (illustrative)

"Kestrel Lofts Ltd", an illustrative example, is a small loft conversion company. In October 2026 it takes on a new self-employed joiner for a two-week job. The director collects his name, UTR and National Insurance number and verifies him online before the first payment. HMRC confirms he is registered and should be paid under deduction at the standard rate.

The joiner's first invoice is for £1,500 of labour and £500 of timber he supplied, with no VAT as he is not VAT registered. The deduction applies only to the labour: 20% of £1,500 is £300. Kestrel Lofts pays him £1,700, records the £300 as owed to HMRC, and gives him a statement showing the gross amount, the cost of materials and the deduction.

Had HMRC been unable to match him, the rate would have been 30%. The deduction would have been £450 and the payment £1,550, until he sorted out his registration and was verified again.

The company and figures are invented for illustration and are not a real client.

What happens if you do not verify?

If you pay a subcontractor without verifying and apply too low a rate, HMRC can hold you responsible for the deductions you should have made. Incorrect returns can also bring penalties, and a poor compliance record can put a contractor's own gross payment status at risk if they also work as a subcontractor. Check the current penalty rules on GOV.UK. The cheapest protection is a simple rule: nobody new gets paid until they have been verified.

Common mistakes

• Verifying after the first payment. The check must come first.
• Using a trading name HMRC does not hold. Use the name on the subcontractor's HMRC registration.
• Deducting from materials. Deduct from labour only, and ask for evidence of materials if the split looks unrealistic.
• Deducting from VAT. The deduction is worked out on the amount before VAT.
• Losing the reference number. Store it with the subcontractor's record.
• Assuming a rate lasts for ever. If you have not used someone for more than two tax years, verify again.
• Forgetting nil returns. A month with no payments still needs a return unless you have told HMRC you are temporarily inactive.

How we can help

We verify subcontractors, calculate deductions, issue statements and file the monthly returns for contractors, and help subcontractors reclaim overpaid CIS tax. CIS services start from £40 per month on a fixed fee. See our CIS service, view our pricing, or contact us before your next return is due on the 19th.