The Construction Industry Scheme (CIS) was originally set up in the 1970s to tackle tax dodging. Over the past 50 years, it has undergone various changes (and will no doubt undergo more changes in the future).
As it stands, you must register for CIS as a contractor if you pay subcontractors for construction work.
Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HMRC.
Subcontractors should register for CIS if they are working for contractors. If they are not registered, deductions are made at a higher rate.
You can register as both a contractor and subcontractor.
Do you have to verify a CIS subcontractor?
Before you can pay new subcontractors, you’ll need to ‘verify’ them with HMRC.
HMRC will tell you whether they’re registered for the Construction Industry Scheme (CIS) and what rate of deduction to use.
You can verify subcontractors using the free HMRC CIS online service or commercial CIS software.
What subcontractor details are required for verification?
If your new subcontractor is a sole trader, you’ll need their UTR and National Insurance number for verification. If they operate as a limited company, you’ll need their company name, company UTR and company registration number.
These verification details must match the details the subcontractor used to register with HMRC.
You’ll also need your Unique Taxpayer Reference (UTR), details of your HMRC accounts office, and your HMRC employer reference.
HMRC will confirm whether the subcontractor is registered and give you a verification reference number. They will also let you know what deductions to make.
If you verify more than one CIS subcontractor at the same time, HMRC will provide the same verification number. You’ll get a different type of reference number if HMRC can’t verify the subcontractor’s registration.
How often do you need to verify a CIS subcontractor?
You need to verify a CIS subcontractor before working with them for the first time (or at least before payment is made).
If you work with a subcontractor on an ongoing basis, you can use the same number indefinitely, unless advised otherwise by HMRC. However, if you stop working with a subcontractor for two tax years or more and then re-enlist them, you will need to re-verify.
You will also need to re-verify subbies if you are advised to by HMRC or if their registration expires or is cancelled. HMRC will notify contractors and subcontractors if there is a change to the deduction rate.
What happens if a subcontractor is not registered for CIS?
If a subcontractor is not registered under the Construction Industry Scheme, you will need to make deductions at a higher rate.
The amount you will need to deduct is:
- 30% if they are not registered under CIS
- 20% if they are CIS registered
- 0% if they have applied for gross payment status
How do you pay CIS subcontractors?
Once you have CIS subcontractor verification, you can pay your new subcontractor.
Before you make payment, you will need to deduct CIS at the rate specified by HMRC. This deduction will then need to be passed on to HMRC. You will need to complete monthly returns. You do not have to file monthly returns in months where you do not make any payments to subcontractors, but you need to let HMRC know that no return is due.
You can also make an inactivity request if you want to temporarily stop using subcontractors. This lasts for up to six months.
CIS deductions are held as advance payment towards a subcontractor’s tax and national insurance.
Manage your subbies with the HardHats subcontractor management tool
As part of our service, all clients get access to our subcontractor management tool. You get your own secure account so you can log in and access all your signed subcontractor agreements. You can also add training certificates, payment details, CIS and verification numbers and any other details about your subbies.
Think of it like an online filing cabinet where you can store information and documentation relating to all your subcontractors.
And that’s not all. We’re constantly developing our software to help make life even easier for construction firms.
Frequently asked questions about the subcontractor verification process
UTR stands for Unique Taxpayer Reference and is a 10-digit code assigned to your business. It is sometimes referred to as a tax reference and you get one when you register for self-assessment or set up a limited company.
Yes – you can verify subcontractors using the HMRC CIS online service (sign in here). If you need to verify over 50 subcontractors you’ll need to use commercial software.
Yes – you will receive one verification number for all subcontractors you verify at the same time.
The tax treatment of self-employed subbies is different to that of employees. Employees have NI and income tax deductions taken directly from their wages to ensure they pay the correct amounts. Self-employed people must complete an annual self-assessment so their tax and NI can be calculated. They then pay any relevant tax and NI directly to HMRC.
CIS is a deduction made from a subcontractor’s pay by the contractor. It is then paid to HMRC and held as an advance payment towards the subcontractor’s tax and NI. Once a self-assessment has been completed any overpayments of CIS can be reclaimed by the subcontractor.