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by

Björgvin Vigfússon

Subcontractor Verification (CIS): The 2025/26 Developer’s Guide

Who it’s for: UK property developers, main contractors and specialist subcontractors who want clean CIS compliance, fewer reworks, and no penalty surprises.

Why it matters: You must verify a subcontractor with HMRC before the first payment (and again if they’ve not appeared on your CIS returns in the current or previous 2 tax years). HMRC then tells you whether to pay gross (0%), deduct 20%, or deduct 30% if details don’t match or they’re unregistered. GOV.UK

What is CIS subcontractor verification?

Verification confirms the subcontractor’s CIS registration and the correct deduction rate. HMRC issues a verification number, store it with your supplier record, job file, and monthly CIS pack. You can verify via the CIS Online Service or compatible software. GOV.UK

You must verify if:

  • It’s the first time you will pay that subcontractor, or
  • They haven’t been on your CIS300 in the current or last 2 tax years. GOV.UK

Quick checklist (from status to statement)

  1. Confirm employment status for the engagement (CIS isn’t a status test). Run CEST, save the output. GOV.UK
  2. Collect details (sub’s UTR, NI/company number, exact legal name, etc.) and verify with HMRC (get the verification number + rate). GOV.UK
  3. Set the rate (0/20/30) in software and split labour vs materials so deductions only apply to the right base. → See: CIS invoice anatomy: labour vs materials (with worked examples).
  4. Consider VAT Domestic Reverse Charge (DRC), if it applies, you don’t charge VAT; your customer reverse-charges it, and you still apply CIS on labour. Add the correct reverse-charge wording. GOV.UK
  5. Pay & file: issue the CIS Payment & Deduction Statement, submit CIS300 by the 19th following the tax month, and pay HMRC. GOV.UK

Worked example (clean and defendable)

  • Sub verified at 20%.
  • Invoice lines: Labour £10,000, Materials £4,000 (ignore VAT here; see DRC note below).
  • CIS base = labour only = £10,000 → Deduction £2,000 (20%).
  • You pay the sub £12,000 (labour £10,000 − £2,000 + materials £4,000) and remit £2,000 to HMRC.
  • Provide the CIS payment & deduction statement and keep the verification number on file. GOV.UK

→ Deep-dive next: CIS invoice anatomy: labour vs materials (with worked examples) and CIS vs VAT Domestic Reverse Charge: when both apply. GOV.UK

When DRC and CIS both apply (and when they don’t)

The VAT Domestic Reverse Charge applies to most B2B construction services within CIS when both parties are VAT-registered and the customer is not an end user/intermediary supplier (or hasn’t given the end-user notification). You do not charge VAT; the customer reverse-charges it. CIS still applies to the labour element. Keep the right invoice wording and end-user paperwork. GOV.UK

Employment status first, then CIS

CIS is not employment status. You must determine if the worker is an employee (PAYE/NIC) or a self-employed subcontractor. Use CEST for a defendable file note and keep evidence with your verification record. GOV.UK

→ Clarifier: CIS isn’t employment status: getting PAYE vs subcontractor right

Deemed contractor rule (developers & large property spend)

Even non-construction businesses can become CIS contractors when their construction spend exceeds £3m on a rolling 12-month basis. Track this monthly; once breached, operate CIS from the next payment to a subcontractor. Some payments can be excepted, check HMRC manual guidance. GOV.UK

→ Deep dive: Deemed contractor rule explained: calculating the £3m spend and when it bites

Penalties and risk if you skip verification or file late

  • Late CIS returns: £100 at 1 day, £200 at 2 months, then £300 or 5% of CIS due at 6 and 12 months (whichever is higher). File by the 19th each month. GOV.UK
  • Wrong rate/under-deduction: If you should have deducted 30% (because details didn’t match) but didn’t, HMRC can pursue the shortfall, keep verification evidence. GOV.UK

→ Read next: CIS penalties & appeals (and how to protect or reinstate GPS)

Doing verification and returns in software

  • Xero – Verify subs, split labour/materials, email CIS statements, and submit CIS300.
  • QuickBooks Online – CIS setup and direct filing of CIS returns to HMRC.
  • Sage – CIS module for CIS300 and statements across Accounting/50.
    (We’ll map your workflow so verification numbers, rates and statements are audit-ready every month.)

→ How-to series: CIS returns & statements in Xero/QuickBooks/Sage

GPS (Gross Payment Status): cashflow accelerator for subs

If HMRC confirms GPS, you pay gross (0%) and the sub settles their own tax via SA/CT. GPS requires good compliance (tax returns, payments, now including VAT compliance checks) and can be withdrawn if standards slip, so protect it. GOV.UK

→ Guide: How to qualify for (and keep) CIS Gross Payment Status in 2025/26
→ for further clarity: CIS GPS Readiness Check

Developer resources (internal)

FAQs (fast, practical)

Do I have to re-verify the same subcontractor every job?
No—not if you’ve included them on a CIS return in the current or previous 2 tax years. If they’ve been absent that long, re-verify before paying. GOV.UK

What details cause a forced 30% rate?
Most often UTR/name/NI (or company number) mismatches. If HMRC can’t match, it’s 30% until corrected—so collect exact legal details before you verify. GOV.UK

We’re a property developer, not a builder. Do CIS rules still bite?
If your rolling 12-month construction spend exceeds £3m, you can be a deemed contractor and must run CIS on payments to subcontractors. Track the threshold monthly. GOV.UK

How does DRC change my invoice?
Where DRC applies, you don’t charge VAT; your customer reverse-charges it on their return. You still calculate CIS on the labour element. Use the correct reverse-charge wording. GOV.UK

What happens if my CIS return is late?
Penalties stack quickly: £100 at 1 day, £200 at 2 months, then £300 or 5% of CIS due at 6 and 12 months—file by the 19th each month. GOV.UK

Can software do verification for me?
Yes—Xero, QuickBooks, and Sage can verify, calculate, statement, and file CIS returns. We’ll configure your chart, tax codes, and templates so it’s error-proof. (See our how-to series above.)

Standard CTA (Heights style)

Want this set up cleanly—no rework?
Book a 20-minute CIS Verification & Workflow Check. We’ll review your verification steps, CEST evidence, DRC wording, labour vs materials split, and CIS300 process.
You’ll leave with: your CIS Setup Checklist (PDF), tidy invoice templates, and a month-end checklist that keeps penalties at zero.
→ Book now

Source notes (GOV.UK)

  • Verify subcontractors (what/when/how & re-verify rule). GOV.UK
  • CIS 340—core operational guidance (verification, record-keeping). GOV.UK
  • File monthly returns (CIS300)—deadlines & submission. GOV.UK
  • Penalty framework for late CIS returns. GOV.UK
  • CEST status tool & update notes. GOV.UK
  • VAT Domestic Reverse Charge—overview & technical guide. GOV.UK
  • Deemed contractor rule—£3m rolling spend. GOV.UK