How to verify a subcontractor

If you’re a contractor in the construction industry, don’t forget to verify subcontractors before handing over any cash. Under the Construction Industry Scheme (CIS), failing to check a subcontractor’s CIS status could mean incorrect tax deductions and some unhappy HMRC agents. 🫠

Why do you need to verify subcontractors? 

HMRC requires CIS verification to make sure the right tax deductions are made when you pay subcontractors. If you miss this step, you might: 

By verifying a subcontractor’s CIS status, you dodge these issues and keep things running smoothly. ✨

When to verify a subcontractor 

Verifying a subcontractor means checking their CIS registration and whether they’re up to date with their payments. Here’s when you need to do it: 

• Before they begin any work or receive payment. 💸
• If they haven’t been on a CIS return in the last two years.
• If you haven’t worked with a subcontractor for more than two tax years, you’ll need to verify the subcontractor again.
• When HMRC notifies you of a registration change or an update to their deduction rate.

Verifying at the right time ensures the correct tax deductions are applied, either 20% for subcontractors registered under the CIS or 30% for those who aren’t. This helps avoid errors, ensures the right amount is deducted for tax, and keeps you clear of potential penalties. 😌

What information is required for CIS verification?

To verify a subcontractor, you’ll need the following information:

• Your Unique Taxpayer Reference (UTR)
• The reference number for your HMRC accounts office 🔢
• Your HMRC employer reference

You’ll also need your subcontractor’s:

• UTR (or CIS number if they don’t have one)
• National Insurance number (if they’re a sole trader) 
• Company name, company UTR, and registration number (if they’re a limited company) 👥
• Nominated partner details, trading name, and partnership UTR (if they’re a partnership)

Make sure that all details match exactly with what the subcontractor has registered with HMRC. Incorrect info can cause delays or errors, so double-check before submitting! ✨

How to verify a subcontractor with HMRC 

Verifying a subcontractor is a crucial part of keeping things smooth with the CIS. Before you hand over any cash, you need to check if your subcontractor is registered and what tax rate should apply. There are two main subcontractor verification methods: 

CIS online 

If you’ve got just a handful of subcontractors, HMRC’s CIS online service is the quickest way to verify. It’s simple, free, and it gets the job done! Here’s what you have to do: 

1. Log in to your HMRC online account. 💻
2. Enter the subcontractor verification details.
3. Submit your request and wait for HMRC’s response.

Commercial CIS software

Got 50+ subcontractors on the books? It’s time to upgrade to commercial CIS software. This is the smart way to bulk verify subcontractors without all the manual work. Plus, HMRC requires you to use this if you’re dealing with large numbers. 

Understanding HMRC’s response 

Once you verify a subcontractor, HMRC will reply with one of three statuses:

If a subcontractor isn’t registered, they can apply for CIS online or contact HMRC.

Updating a subcontractor’s CIS status 

Keeping your subcontractor’s CIS status up to date is essential for staying compliant with HMRC. Here’s when you should update their records:

• Before making the first payment: always verify a subcontractor’s status before paying them for the first time, ensuring you apply the correct tax deductions.
• Whenever their status changes: if their business structure changes (e.g., from sole trader to limited company) or HMRC updates their registration.
• When HMRC notifies you: HMRC may alter a subcontractor’s CIS status or tax deduction rate. They’ll notify you of any updates, but it’s always good to stay proactive.

To update a subcontractor’s CIS status, simply use the HMRC CIS online service or commercial CIS software. You’ll need to submit the updated details of the subcontractor, including their new registration status, UTR, or any other relevant information.

By staying on top of these updates, you ensure smooth payments, correct tax deductions, and keep things running without a hitch. ✅

Stay CIS compliant 

Verifying a subcontractor isn’t just a formality, it’s essential to ensure correct tax deductions and avoid HMRC penalties. Use CIS online or the CIS contact number to check subcontractor details before making payments.