As a contractor in the UK, navigating the Construction Industry Scheme (CIS) can be a bit overwhelming, especially when it comes to verifying subcontractors. With different types of subcontractors requiring varying information for verification, it’s essential to know what you need to do to stay on the right side of HMRC.
In this blog post, we’ll guide you through the CIS verification process and help you understand what you need to do to comply with regulations.
Getting it Right: CIS Verification
CIS deductions are amounts deducted by contractors from payments made to subcontractors under the Construction Industry Scheme (CIS) in the UK. HMRC requires contractor to perform thorough verification of the subcontractors before making the payments. Let’s take a closer look at the verification process.
Making Verification
Verification process of the subcontractor specifies the percentage of tax you must deduct before making the payment. To verify a subcontractor, you can use HMRC’s online CIS service.
Information required for verification
The information needed to verify a subcontractor varies depending on the type of subcontractor, whether they are a sole trader, a partnership, or a limited company. Here is a list of the required information for each type of subcontractor.
Sole Trader:
- Name
- Unique Taxpayer Reference (UTR)
- National Insurance Number (NINO)
Partnership:
- Name
- Unique Taxpayer Reference (UTR)
Limited Company:
- Name
- Unique Taxpayer Reference (UTR)
- Company Registration Number
Note: If all partners in a partnership can receive payment, then the UTR of all partners is required.
Successful Verification
After the verification process is completed, the CIS system checks to see if HMRC has any information about the subcontractors. Percentage of CIS deduction are decided at this time based on the registration status of Subcontractor.
As per HMRC the CIS deduction rate are:
- 20% for registered subcontractors.
- 30% for unregistered subcontractors
- 0% if the subcontractor has ‘gross payment’ status
Further, HMRC provides a ten-digit verification number starting with alphabet “V” upon verification.
Reverification
Contractors must verify every new subcontractor registration status with HMRC before making the first payment. The verification number is valid for two tax years.
However, re-verification must be conducted in the following circumstances and failure to do so constitutes non-compliance:
If the subcontractor was not paid under Construction Industry Scheme (CIS) in the previous or current tax year.
For example,
A Ltd company Jo&Jo first assigned his construction task to Co&Co in May 2018 (tax year 2018/2019) and did not assign any work until August 2021 (tax year 2021/22), which is more than two tax years.
In this case, the contractor must perform reverification before making payment.
Reverification should also be conducted when the subcontractor’s HMRC registration has expired or been cancelled.
If the contractor has reason to suspect that the subcontractor’s registration status has changed, such as a change in the subcontractor’s business name or address.
Verification for multiple companies and division
Contractors can sometimes be group of company or the division. These group companies and division must have their individual PAYE and account office reference numbers.
However, if such group companies assign work to the same subcontractor to perform certain task, in such situation the verification number and detail obtained by the previous division can be used.
You still need to file a separate monthly return, and payment must be made by the individual entity.
Conclusion
In conclusion, verifying subcontractors is a critical part of compliance with the Construction Industry Scheme regulations.
As a contractor, it’s crucial to ensure that you have obtained all the necessary information and documentation to verify your subcontractors properly.
