How to Verify a Subcontractor

Here at Contractwise, we’re experts in all HMRC legislation including the Construction Industry Scheme, otherwise known as CIS.

Introduced in the 1970s, the scheme is essential in the UK construction sector to ensure all tax is paid properly and compliance is maintained. If you’re a construction company then you are responsible for ensuring CIS is fully complied with and this includes properly verifying subcontractors.

This is a critical step that ensures your company meets all of HMRC’s stringent requirements, and non-compliance can be met with extremely costly penalties.

Our team can assist with payroll audits to remove any HMRC reclassification risks, and in this blog, we’ll cover the importance of CIS subcontractors, the steps involved and how the process can be streamlined.

Read on to find out more…

Why is verifying subcontractors important?

While it is not mandatory for subcontractors to be registered with CIS, all contractors must be and they will be required to verify the tax status of any subcontractors they use.

Verification is not just a procedural requirement, it is a legal obligation.

This means that HMRC mandates contractors to verify the tax status of the subcontractors before any CIS payments are made. Once this verification has been completed, it will then be determined whether the subcontractor should:

• Be paid gross tax (no deductions)

• Have a 20% tax deduction (for subcontractors who are registered)

• Have a 30% tax deduction (if they are not registered under CIS)

Failing to verify subcontractors can result in incorrect deductions, one that could lead to severe penalties or disputes with HMRC. Verification will avoid this and also ensure transparency and compliance which are vital for maintaining supply chain trust.

Who is a subcontractor?

Determining exactly who is classified as a subcontractor is also an important part of the process.

A subcontractor is someone that is paid by contractors to carry out work. Usually, subcontractors will be brought on board to carry out specific tasks for a project and they tend to be experts in certain areas. Usually, they will work exclusively for a contractor but they may also have relationships with several contractors who they work for on a continuous basis.

No matter what approach your subcontractors take, they must be properly CIS verified.

Some typical examples of subcontractors include the following:

• Plumbers

• Carpenters

• Electricians

• Groundworkers

• Plasterers

• Stone masons

• Engineers

• And more

At Contractwise, we can help with this verification process and ensure subcontractors are properly verified. Sometimes, people incorrectly classify their employees as subcontractors which will come with severe penalties. Our team can help prevent this, protecting both contractors and subcontractors.

How to verify a subcontractor?

If you’re looking for a detailed guide on how to verify subcontractors with CIS, Contractwise is here to help.

Gather subcontractor information

Before you begin the verification process, you will need to collect the necessary details about the subcontractor. This includes the following:

• The person’s name or the name of their business

• Unique Taxpayer Reference (UTR)

• National Insurance Number (if they are self-employed) or their Company Registration Number (if a limited company)

• VAT registration number (if applicable)

While you may be able to verify a subcontractor without all of the information above, we’d still recommend gathering it all. You should also ensure all of the information is accurate to make sure there are no errors during the verification process.

Register with CIS online services

To verify subcontractors you must first be registered with CIS yourself. If you have not already done so, simply log into your HMRC online account and navigate to their CIS online services.

Once this has been set up you will be able to verify subcontractors individually or in bulk.

Submit the verification request

To verify a subcontractor follow these steps:

• Log into your CIS online account

• On the left-hand side of the page, click on the ‘verify subcontractors’ tab

• You will then be asked to provide a range of details about your subcontractor including their name, UTR, company registration number and more

Once the form has been completed, you will then receive instant confirmation of the subcontractor’s verification status. If HMRC requires any additional checks you may be contacted within 24 hours.

Record the verification number

Once you have verified a subcontractor, you will then be provided with a CIS verification number. A CIS verification number is essential and you must keep it recorded for future reference. This is because it acts as proof that you have successfully verified the subcontractor and will confirm the appropriate reduction rate (0%, 20% or 30%). The CIS verification number will always begin with a V and will then be followed by 10 numbers.

Apply the correct deduction

Based on the verification results, you will then be able to determine what CIS deductions you need to make for each subcontractor.

These will be as follows:

• Gross payment status: No deductions needed

• Registered subcontractors: 20% deductions from payment

• Unregistered subcontractors: 30% deductions from payment

These deductions should be accurately reflected in all of your CIS payroll records. All payments and deductions made under CIS must be reported to HMRC through monthly CIS returns. You should include the CIS verification number, subcontractor details, and the amounts paid and deducted from these returns. Make sure all returns are submitted accurately and on time to avoid any penalties.

While you can do these returns yourself, we’d always recommend using a professional company like Contractwise to avoid any problems.

Need Further Help?

While the verification process may seem straightforward, contractors who submit subcontractors themselves often run into difficulty. This could include missing or incorrect details, finding the process time-consuming if submitting several subcontractors at once and changing tax statuses.

Whatever the case, the team at Contractwise are more than capable at handling all of these difficulties, allowing you to focus on the day-to-day running of your business with the peace of mind that all of your CIS obligations are being taken care of. With a wide range of CIS services on offer, contact our team today to find out more.