Before a payment is made by a contractor they must complete a CIS subcontractor verification. This then establishes the correct amount of tax to deduct. How to complete a CIS subcontractor verification and when to do it?
CIS subcontractor verification for new subcontractors
When contractors take on a new subcontractor who they have not used before they must verify them before any payment is made.
Contractors must do this to ensure that the correct CIS tax rate is being deducted from the subcontractor. Only HMRC can provide the CIS tax rate.
Contractors can use the HMRC website or commercial software. A lot of payroll software is compatible with CIS.
CIS verification information required
To complete the CIS subcontractor verification process you will need to provide HMRC with the following subcontractor details:
- Unique Tax Reference (known as UTR)
- Companies House Number (Limited Companies) or National Insurance Number (Soletraders or Partnerships)
Tip: Some software can complete the CIS subcontractor verification without a National Insurance number. We would still recommend obtaining this information however it isn’t always essential.
CIS subcontractor verification using the HMRC website
Below are the steps which a contractor needs to complete to verify the subcontractor using the HMRC website:
- Log on to the HMRC website using their login details.
- On the left hand side of their CIS webpage should be a link ‘add subcontractor’
- It will then ask what type of business the subcontractor is i.e Individual, Company, etc
- A new webpage will appear requesting the subcontractors information. The webpage will look similar to the image below. The image below is where the subcontractor is an individual.
When you complete the above you will then receive the verification results.
Depending on whether you use the HMRC website or other software, the process will be slightly different. However whichever you do decide to use in all cases HMRC will provide you with 2 pieces of information. They will inform you of the tax to be deducted and a verification number.
The tax you need to deduct will either be:
- 30% deduction as they are not registered as subcontractors
- 20% deduction as they are registered at the standard / net rate
- 0% deduction as they are registered with gross payment status
The verification number which is your proof that you have deducted the correct amount of tax. You will be provided with the same verification number if you verify multiple subcontractors at the same time.
The verification number will typically be a V followed by 10 numbers. An example would be V1230122604.
Tip: Typically contractors know what rate HMRC will say to deduct. If a different rate is showing in the verification process we recommend the contractor informs the subcontractor before the payment is made. It could simply be that the incorrect UTR or other information was provided which if this does happen just complete the verification process again. It is up to the subcontractor to contact HMRC if they believe the incorrect CIS tax is being deducted. The contractor must deduct whatever CIS tax rate HMRC say to deduct as part of the CIS subcontractor verification.
CIS subcontractor verification for current subcontractors
Contractors don’t need to complete a CIS subcontractor verification every time they make a payment to the subcontractor.
Typically if the contractor has used the subcontractor in the last 2 years they won’t need to be verified again. Both the HMRC website and the commercial software that we use will warn you if the verification is out of date. Only then would a contractor need to complete a CIS subcontractor verification.
Should the subcontractor change status from say 20% to 0% tax or vice versa HMRC will notify both the contractor and the subcontractor of the change. HMRC only notify contractors who have an up to date verification.
This is why if a verification is out of date the contractor must verify them again as they won’t be informed of any changes. However if the verification is still valid (in date) then the contractor can continue to pay the subcontractor whatever tax deduction was done previously.
At Patterson Hall Chartered Accountants we are experts within all aspects of the Construction Industry Scheme. We have produced an ultimate guide to all things CIS with many user friendly helpsheets and examples. Take a look at our CIS Accountants guide.
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