The Construction Industry Scheme (CIS) is one of the most important compliance frameworks for contractors working in the UK construction sector. It was introduced by HMRC to ensure that tax is correctly deducted at source from payments made to subcontractors.

If you’re a contractor, one of your first and most important responsibilities is to verify every subcontractor you pay. This process determines whether you pay them gross (with no deductions), at the standard 20% deduction, or at the higher 30% rate.

In this guide, we’ll walk you through:

• Why verification is so important
• When and how often you need to do it
• The exact steps to follow on HMRC’s online service
• What to do if things go wrong
• Practical tips for staying compliant and organised

At Crunch, we work with contractors across the UK to make CIS compliance simpler and less stressful. Here’s how you can stay on the right side of HMRC without unnecessary headaches.

Why do contractors need to verify subcontractors?

Verification isn’t just red tape. It has real consequences:

• Legal obligation: Contractors must verify new subcontractors with HMRC before making their first payment. Skipping this step risks penalties and puts your compliance at risk.
  

• Ensures correct deduction rate: Verification tells you whether to apply:
  
  
  • 0% (gross) – the subcontractor is registered for gross payment status
  • 20% (standard) – the subcontractor is registered under CIS but not for gross payment status
  • 30% (higher) – the subcontractor is not registered with CIS, or their details don’t match HMRC’s records
    
• Protects your business: If you deduct incorrectly, HMRC may hold you liable for underpaid tax. Verification gives you the evidence you need to show you acted properly.
  

Think of verification as the safety net that keeps both you and your subcontractors compliant.

When to verify a subcontractor

You need to verify every new subcontractor before their first payment. But that’s not the only time. Re-verification is required in certain cases:

• Breaks in engagement: If you haven’t included a subcontractor in your CIS returns in the current or last two tax years, HMRC requires a fresh verification.
  
• Business changes: If a subcontractor changes from Sole trader to Limited company (or vice versa), changes their trading name, or updates their UTR, you must re-verify.
  
• Prompted by HMRC: Sometimes HMRC will request a re-verification, usually if their records have been updated.

It's a good idea to build verification into your onboarding checklist for every new subcontractor. That way, you won’t forget when projects start quickly.

Information you’ll need

Before logging into HMRC’s system, make sure you have the right details. Missing or inaccurate information is the most common reason verifications fail.

Contractor’s details (that’s you)

• Unique Taxpayer Reference (UTR)
• Accounts Office Reference
• Employer PAYE reference number

Subcontractor’s details

This depends on their business structure:

• Sole trader: Name, UTR, and National Insurance number
• Partnership: Trading name, partnership UTR, and a partner’s UTR or NI number
• Limited company: Company name, UTR, and Companies House registration number

Remember that the details must match HMRC’s records exactly. For example, if HMRC has the subcontractor listed as “John A. Smith” and you enter “John Smith,” the system may reject the verification.

Step-by-step: verifying a subcontractor using HMRC online

Here’s how to do it using HMRC’s online CIS service:

1. Log in to your HMRC Government Gateway account. If you haven’t already, you’ll need to add the CIS online service to your account.
2. Navigate to “CIS” and choose “Verify a subcontractor”.
3. Enter your details (UTR, Accounts Office Reference, Employer Reference).
4. Enter the subcontractor’s details (based on their business type).
5. Submit the verification request.
6. HMRC will issue a verification number (starting with “V” followed by 10 digits) and confirm the deduction rate you must apply.

If you’re verifying several subcontractors at once, HMRC may give you one verification number for the whole batch.

What happens after verification?

Once verified, you’ll know the correct deduction rate (0%, 20%, or 30%). You must:

• Record the verification number and date – HMRC expects you to keep this for at least three years.
• Apply the correct rate when making payments.
• Report deductions in your monthly CIS return.
• Provide subcontractors with payment and deduction statements so they can reclaim or offset tax at year-end.

Alternative verification options

HMRC’s online service works for most contractors, but there are alternatives:

• Phone verification: You can call HMRC’s CIS helpline and verify subcontractors over the phone.
  
  
• Commercial CIS software: If you have 50+ subcontractors, HMRC requires you to use approved software. These tools often integrate with payroll and accounting systems, making bulk verification easier.
  
  
• Agent/accountant verification: If your accountant has the correct authority, they can handle verification on your behalf. 

What if verification fails?

Sometimes HMRC rejects a verification request. Common reasons include typos, mismatched names, or subcontractors not being properly registered.

If this happens:

1. Double-check the details – especially spelling, UTR, and NI number.
   
   
2. Contact the subcontractor to confirm what HMRC has on record.
   
   
3. If the issue persists, HMRC requires you to deduct at the higher 30% rate until the subcontractor registers or their records are corrected.

Record-keeping and compliance best practices

HMRC can request evidence of your CIS compliance at any time. To protect yourself:

• Keep verification numbers, dates, and deduction rates for at least three years.
• Store copies of subcontractor invoices and payment statements.
• File your monthly CIS returns on time (late filing penalties can add up quickly).
• Use digital tools or accounting software to stay organised – manual spreadsheets can be risky.

It is recommended to set up a standard process for CIS verification and returns. A little organisation up front saves a lot of stress later.

What you need to remember

• Verify every new subcontractor before making payments.
• Use HMRC’s online service for straightforward verification.
• Keep records of verification numbers and deduction rates.
• Re-verify if there are breaks, changes, or HMRC prompts.

Verifying subcontractors may feel like an administrative hurdle, but it’s one of the most important responsibilities for CIS contractors. Done correctly, it keeps you compliant, avoids penalties, and ensures subcontractors are paid correctly.

With the right process in place, and support from an experienced accounting partner like Crunch, you can manage CIS smoothly and focus on growing your business.

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