The Scheme: contractors: verifying subcontractors
SI2005/2045 reg 6, requires a contractor to verify with HMRC whether a subcontractor to whom the contractor is proposing to make a payment for construction operations is registered with HMRC for payment under deduction or for gross payment.
The contractor does not have to verify every subcontractor. The general rule is that where a subcontractor has been included on a return by that contractor in the current tax year or in either of the previous two tax years, further verification is not necessary before making payment.
From 6 April 2017 it will become mandatory to undertake all verifcations online.
Special rules that applied for the first two years after 6 April 2007
The general rule is that where a subcontractor has been included on a contractor’s return within the current or two previous tax years the subcontractor does not have to be verified again. However, where the subcontractor was last included on a return under the old Scheme, that is, before 6 April 2007, certain transitional rules, set out at FA04/s77, applied. This meant that to avoid having to verify the subcontractor under the new Scheme, the contractor had to be satisfied that the subcontractor held a valid Tax Certificate or Registration Card at 5 April 2007.
A simple way of looking at this is set out below.
Essentially, a contractor did not have to verify any subcontractor where
at the time the subcontractor was last included on a return, the contractor had seen at least one of the following
- a Registration Card CIS4(P), or
- a temporary Registration Card CIS4(T) with an expiry date of 04/2007 or later, or
- a Tax Certificate, CIS6 or CIS5, with an expiry date of 04/2007 or later.
So, if the contractor last paid the subcontractor in August 2006 and the contractor’s records showed that the subcontractor held a CIS6 that was due to expire in September 2007, clearly the subcontractor had a valid Tax Certificate at 5 April 2007. In this case, the subcontractor could be paid under the new Scheme without the need to be verified and could also be paid gross as this was how they were last paid.
Subcontractor did not show Tax Certificate or Registration Card valid at 5 April 2007.
In those cases where the contractor only ever saw either a temporary Registration Card CIS4(T) or a Tax Certificate which, although valid at the time of payment, expired in March 2007 or earlier, verification was still necessary before making the first payment to the subcontractor under the new Scheme.
So, if the contractor last paid the subcontractor under the old Scheme in September 2006 and only saw a CIS6, or a temporary CIS4(T), showing an expiry date of 10/2006 and had seen neither a CIS4(P) or a later CIS4(T) or tax certificate for this subcontractor, then verification was still necessary before making the first payment to the subcontractor under the new Scheme.
Contractors that are companies within a group
Contractors do not have to verify any subcontractors that have already been verified by other companies within the same group within the current or previous two tax years. Likewise, if verification is not necessary because the subcontractor was last paid within the current tax year, or the previous two, by another company in the group, this will mean that none of the companies within the group need to verify the subcontractor.
Contractors using the HMRC Online filing application
Since May 2016, the HMRC Online filing application has been removing the verification details from subcontractors that were last verified over two calendar years ago. This is an error and we are currently addressing this. If a contractor has included a subcontractor on their monthly return within the current or two previous tax years, further verification is not necessary before payment may be made. Where a contractor wishes to maintain subcontractor details on the HMRC Online filing application, they should re-verify the subcontractor using the online application if it requests them to do so. We shall fix this as soon as possible.