What is the CIS verification requirement?

Under the Construction Industry Scheme (CIS), contractors must verify the tax status of subcontractors before making payments.

HMRC has recently increased compliance activity and is contacting contractors to ensure they are:

• Verifying subcontractors correctly
• Applying the correct CIS deduction rates
• Submitting accurate CIS returns

When do you need to verify a subcontractor?

You must verify a subcontractor if:

• You are using them for the first time, or
• You have not included them on a CIS return in:
• • The current tax year, or
  • Either of the previous two tax years

Failing to verify can result in incorrect tax deductions.

What are the CIS deduction rates?

Once verified, HMRC will confirm which deduction rate to apply:

• 0% → Subcontractor has gross payment status
• 20% → Standard registered subcontractor
• 30% → Not registered with CIS

Applying the wrong rate can lead to compliance issues and penalties.

How do you verify subcontractors?

You can verify subcontractors using:

• HMRC’s online CIS service, or
• Commercial accounting software

If you need to verify more than 50 subcontractors at once, you must use commercial software.

What happens if you don’t comply?

HMRC is actively reviewing CIS compliance.

If you do not:

• Verify subcontractors correctly, or
• Apply the correct deductions

HMRC may:

• Open a compliance check
• Review your CIS returns
• Identify errors and underpayments

Penalties and disclosures

If HMRC identifies errors during a compliance check:

• Any disclosure you make will be treated as “prompted”
• This usually results in higher penalties

This makes it important to correct issues before HMRC contacts you.

Common mistakes to avoid

• Not re-verifying subcontractors after a period of inactivity
• Applying incorrect deduction rates
• Assuming previous verification is still valid
• Failing to keep proper CIS records
• Ignoring HMRC warning letters

Practical tips for contractors

To stay compliant:

• Keep an up-to-date list of subcontractors
• Regularly review CIS returns before submission
• Ensure your accounting system supports CIS properly
• Re-verify subcontractors when required

Final thoughts

CIS compliance is an area HMRC is focusing on heavily.

Simple mistakes — such as failing to verify subcontractors — can lead to penalties, compliance checks, and additional tax liabilities.

Staying proactive and keeping your records accurate is key.