How to Verify a Subcontractor and Keep the Right CIS Evidence

Verifying a subcontractor is not a one time identity check. It is the process contractors use to confirm Construction Industry Scheme registration and obtain the correct deduction status before payment. A reliable system protects the contractor from using the wrong rate, losing verification references and filing inaccurate monthly returns.

The safest approach is to collect exact legal details, assess employment status, verify through HMRC, save the result and link it to every payment and deduction record.

When verification is required

A contractor must verify a new subcontractor before making the first payment. A previous subcontractor must be verified again if they have not appeared on a CIS return in the current tax year or either of the previous two tax years.

Verification does not prove that someone is genuinely self employed. Contractors must consider employment status separately before applying CIS, and the monthly return includes a declaration that listed subcontractors are not employees. HMRC’s CEST service can support this review if the answers accurately reflect the contract and working arrangements.

Details to collect first

Ask the subcontractor to provide the same details used when registering with HMRC. Small differences in names or business structure can cause a failed match.

The contractor should also have its own UTR, Accounts Office reference and employer reference ready. Temporary National Insurance numbers cannot be used for verification.

A repeatable verification process

1. Check the engagement

Confirm that the work falls within CIS and document why the subcontractor is self employed. Keep the contract, scope of work and any CEST result with the onboarding file.

2. Validate the details

Compare the subcontractor’s name and identifiers with supporting records such as HMRC correspondence, Companies House information and bank details. Do not change spellings simply to force a match.

3. Verify with HMRC

Use the HMRC CIS online service or recognised commercial software. Contractors verifying more than 50 subcontractors must use commercial software. Complete the process until HMRC provides a matched or unmatched result and a verification reference. which should be retained for your CIS 300 monthly return.

4. Apply the instructed rate

HMRC will confirm one of three payment treatments:

These deductions are advance payments towards the subcontractor’s tax and National Insurance liabilities.

5. Save the evidence

Record the verification date, subcontractor details submitted, HMRC result, deduction rate, verification number and the employee who completed the check. Save the confirmation with the subcontractor ledger and onboarding documents.

Handling an unmatched worker

An unmatched result means HMRC could not link the supplied information to a registered CIS record. The contractor may still pay the subcontractor, but must deduct at 30% until HMRC confirms another status.

Follow this process:

1. Record the full unmatched verification number, including any final letter.
2. Give the number to the subcontractor and ask them to check their registered name, UTR and other identifiers.
3. Ask the subcontractor to register for CIS or correct their HMRC record where necessary.
4. Try verification again before payment if the problem was a simple data error.
5. Continue using 30% until a successful result confirms a different rate.
6. Keep earlier payment records under the unmatched number so HMRC can later link them to the registered record.

Never replace the original unmatched record or apply 20% merely because the subcontractor says they are registered. The payment status must come from HMRC.

Verification number records

A successful check produces a verification reference. An unmatched reference normally includes an additional letter and must be shown on the CIS monthly return where the higher rate was used.

For each subcontractor, retain:

1. Legal name, trading name and business type
2. UTR and relevant National Insurance or company number
3. Verification date, result and complete reference
4. Deduction rate and date it became effective
5. Contracts, invoices and evidence supporting material costs
6. Payment and deduction statements
7. Monthly return figures and payment records

CIS payment records must be kept for at least three years after the end of the relevant tax year. HMRC can charge a penalty of up to £3,000 if the contractor cannot produce them.

Calculating the deduction

Start with the invoice value excluding VAT. Remove qualifying amounts paid directly by the subcontractor for materials, consumable stores, job specific plant hire, non travel fuel and certain manufacturing costs. Apply the HMRC rate to the remaining amount.

For example, if labour and materials total £10,000 excluding VAT and evidenced materials are £2,000, the deduction base is £8,000. At 20%, the CIS deduction is £1,600.

Do not confuse CIS with the VAT domestic reverse charge. CIS deductions usually apply after removing qualifying materials, while the reverse charge can apply to the full supply of construction services and associated materials.

Returns and statements

Report all subcontractor payments on the monthly CIS return, including payments made gross. Returns cover the tax month ending on the fifth and must reach HMRC by the nineteenth.

Where CIS is deducted, provide a payment and deduction statement within 14 days after the tax month ends. It should show the contractor’s name and employer reference, subcontractor name and UTR, gross payment excluding VAT, materials, deduction and unmatched verification number where 30% was applied

Reconcile invoices, payments, verification status, statements and the monthly return before filing. Even a return one day late can trigger a £100 penalty.

Common mistakes

1. Verifying after the first payment
2. Treating CIS verification as proof of self employment
3. Using 20% while a worker remains unmatched
4. Omitting the final letter from an unmatched reference
5. Deducting CIS from VAT or unsupported material amounts
6. Failing to reverify an inactive subcontractor
7. Allowing the ledger, deduction statement and CIS return to show different figures

How Construction Tax accountants help

Construction Tax accountants can create a controlled subcontractor onboarding process, review whether a worker should be treated as a subcontractor or employee, complete HMRC verifications and maintain a clear verification register. The team can also calculate deductions, check material evidence, prepare payment statements, reconcile CIS ledgers and submit monthly returns. This joined up support helps main contractors avoid incorrect rates, missing unmatched references, late filings and differences between accounting records and HMRC submissions.

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