CIS payroll services for UK contractors

How are subcontractors verified with HMRC?

Before paying a new subcontractor, a contractor normally needs to verify them with HMRC. The result confirms whether they are registered for CIS and tells you which deduction rate to use. We need accurate identifying information: the legal name and tax reference must match HMRC’s record. A nickname on a timesheet or a trading name without the correct entity details can delay verification.

Verification is not simply a one-off tick for every future payment. Previously used subcontractors may need re-verification when they have not appeared on your CIS returns in the current and previous two tax years. Keep verification references and the information used, and tell us if the subcontractor’s legal entity changes. We work from HMRC’s result, not from an invoice stating “gross” or a verbal assurance.

When do 0%, 20% and 30% deductions apply?

The usual CIS deduction is 20% for registered subcontractors and 30% where HMRC’s verification requires the higher rate. Gross payment status means payment without a CIS deduction: effectively 0%. Gross status is granted by HMRC subject to its conditions; it is not something a contractor or payroll bureau can promise, and it does not remove the subcontractor’s tax obligations.

The rate is applied to the appropriate deduction base, not automatically to the entire invoice. VAT is excluded, as are qualifying amounts such as materials the subcontractor paid for directly. Material amounts need supporting information and a reasonable check. Do not remove labour from the deduction base by labelling it “materials”. CIS deductions are advance payments towards the subcontractor’s tax and National Insurance, rather than a final calculation of their liability.

What do monthly returns and statements cover?

The monthly return records relevant payments and deductions for the CIS tax month. It also requires the contractor to consider employment status. We reconcile payment records, prepare the figures and seek your approval before submission. Payment and deduction statements give subcontractors the information they need to account for deductions, with a clear separation of payment, materials and the amount withheld.

A busy construction business may pay employees and subcontractors in the same week. Those are different reporting streams, even when the same administrator gathers both sets of information. We can manage CIS administration alongside employee payroll, but the written quote identifies the work required. Do not assume the employer per-payslip table is a price for every subcontractor payment or that CIS is automatically included in every employer plan.

How does it work?

1. 1

   Confirm the contractor setup

   We review the contractor scheme, subcontractor list, previous returns and payment process. You identify who approves invoices, materials evidence and status decisions, and how information reaches payroll before each reporting cut-off.

2. 2

   Verify and reconcile payments

   We obtain matching subcontractor details, check the HMRC verification result and review actual payment information. Labour and qualifying material amounts are separated so the correct deduction base can be established.

3. 3

   Approve deductions and statements

   The payment calculation is prepared for review using the applicable 0%, 20% or 30% result. Queries over identity or invoice breakdowns are resolved before statements and payment instructions are finalised.

4. 4

   Prepare the monthly return

   We reconcile payments across the tax month, obtain approval and submit the agreed return. Retain the supporting invoices, verification records and statements, and arrange payment of deductions to HMRC as required.

Common mistakes and compliance traps

CIS registration and gross payment status do not prove self-employment. Decide employment status for the actual engagement; where employment applies, PAYE is the appropriate route rather than CIS.

Do not deduct CIS from VAT, omit paid subcontractors from a return, or accept unsupported materials figures. Where no subcontractors were paid, follow HMRC’s nil-return or inactivity guidance rather than assuming there is nothing to do.

• GOV.UK: verify subcontractors
• GOV.UK: CIS deductions and payments
• GOV.UK: monthly CIS returns