Verifying a subcontractor
for CIS, with HMRC.

Verification is the check with HMRC that tells you what rate to deduct from a subcontractor: twenty per cent if they are registered and matched, thirty per cent if they are not, and nil if they hold gross payment status. It has to happen before you pay them, and applying the wrong rate is the contractor liability, not theirs.

Why does verification have to come before you pay?

The sequence is the whole point and it is the part firms invert. Verification is not a record you create after paying; it is the instruction that tells you how much to pay.

A contractor that pays first and verifies afterwards has already deducted at a rate it guessed. If the guess was low, the shortfall is the contractor problem to make good to HMRC, and recovering it from the subcontractor is a commercial conversation you may lose. If the guess was high, you have taken money from a subcontractor that you had no authority to take, which is its own problem.

Verification is not paperwork about the payment. It is the thing that tells you what the payment is.

What it returns

• Twenty per cent where the subcontractor is registered under CIS and HMRC matches them to its records.
• Thirty per cent where they are not registered, or where HMRC cannot match the details you supplied. Note that second limb: an unmatched verification produces the higher rate even for a subcontractor who is properly registered, which is usually a data problem rather than a status one.
• Nil where they hold gross payment status.

HMRC issues a verification reference. Keep it against the subcontractor record, because it is the evidence that you deducted at the rate you were told to.

What you need to do it

Their legal business name and structure, their Unique Taxpayer Reference, and their National Insurance number for a sole trader or company registration number for a company. Getting these slightly wrong is the commonest cause of an unmatched result and therefore of a thirty per cent deduction nobody intended.

Which argues for collecting them at onboarding, in writing, alongside insurance and competence records, rather than from an invoice when a payment is due. It is the same argument as everything else in vetting a subcontractor: the checks belong at the point of instruction because that is the only moment when nobody is waiting for money.

How long does a CIS verification last?

You do not have to verify a subcontractor every time you pay them. A verification remains usable while you continue to include them in your returns, and needs repeating where there has been a sufficient gap since you last included them.

Practically, that means a subcontractor you use continuously is verified once, and one you used for a package last year and are bringing back needs checking again. Assuming the old rate still applies to a returning subcontractor is a small, common and entirely avoidable error.

If you have deducted at the wrong rate

Correct it rather than carry it. Under-deduction leaves you owing HMRC the difference, and the longer it runs the larger and harder to unpick it becomes, particularly if the subcontractor has moved on. Over-deduction is money that belongs to the subcontractor and that they will recover slowly, which is a relationship cost as well as a technical one.

Either way, tell your accountant early. This is one of the few CIS errors that gets materially worse with time rather than simply staying wrong.

Where to start, on Monday

Take every subcontractor you have paid in the last three months and check two things: is there a verification reference on file, and did the rate you deducted match what it returned.

Then move verification into your onboarding pack rather than your payment run, so it happens when the order is placed. It costs nothing to move and it removes the entire category of error.