Monthly returns by the 19th, subcontractors verified before you pay them, statements out in the same fourteen days, and the materials figure checked rather than accepted — because as the contractor it is your responsibility that it is reasonable.
A tax month runs from the 6th of one month to the 5th of the next, and everything is measured from the end of it rather than from the calendar month. Within 14 days of that month end — the 19th — two things are due: the monthly return, and a payment and deduction statement to every subcontractor you deducted from. Then the money itself is due by the 22nd if you pay electronically, or the 19th if you still pay by post.
The reason that matters is that the penalty runs from the return, not from the payment. They are two separate exposures on two separate dates, three days apart, and a business that thinks of CIS as "the thing I do around the 20th" will eventually miss one of them.
You verify a subcontractor with HMRC before the first payment. You do not need to verify again if they appeared on one of your monthly returns in the current tax year or either of the two before it. What comes back is a verification reference for the batch — and where a subcontractor could not be verified, the same reference with a unique letter appended.
That letter is the bit people drop. CIS 340 is unambiguous: it is essential that the contractor shows the verification reference number, complete with any letters on the end, on the subcontractor's payment and deduction statement in each case where deductions have been made at the higher rate. A 30% deduction with no reference on the statement is a defect in your records and an unanswerable question from the subcontractor.
The scale is fixed and it escalates quickly. One day late is £100. Two months is £200. At six months it becomes £300 or 5% of the CIS deductions on the return, whichever is higher — so on a return with substantial deductions the percentage takes over from the flat fee. At twelve months a further £300 or 5% is added, and in the most serious cases beyond twelve months the penalty can reach £3,000 or 100% of the CIS deductions, whichever is higher.
You have 30 days from the penalty notice to appeal. That window is short and it is the reason penalty notices should not sit in a pile on a van dashboard.
No. You must verify with HMRC before the first payment, but no verification is needed if you last included that subcontractor on a monthly return in the current tax year or in either of the two previous tax years. So a subcontractor you use regularly does not need re-verifying, and one you have not used for three years does. HMRC gives you a single verification reference for a batch of subcontractors; where one of them cannot be verified, the same number comes back with a unique letter on the end of it.
Your name and employer tax reference; the end date of the tax month the payment falls in; the subcontractor's name and Unique Taxpayer Reference; the verification number where the subcontractor could not be verified; the gross amount paid; the cost of materials that reduced the deduction; and the amount of the deduction itself. It has to reach them within 14 days of the end of the tax month, the same window as the return. Where you pay somebody gross, no statement is required at all — although CIS 340 calls issuing one anyway good practice, and it saves an argument later.
Yes, if you are a mainstream contractor — this came back on 6 April 2026. Where you paid no subcontractors you must either file a nil return or notify HMRC of a period of inactivity, by the 19th. The nil filing obligation had been removed in 2015; HMRC's stated reason for reinstating it is that removing it did not reduce burdens and produced erroneous late-filing penalties. Deemed contractors are not legally required to file a nil return, but if they neither file nil nor notify inactivity HMRC will issue a penalty — cancelled if they then confirm no subcontractors were paid.
Yours, as the contractor. Deductions must only be made from the part of the payment that does not represent the cost of materials the subcontractor directly incurred, and HMRC's instruction where a materials figure looks overstated is that you ask for satisfactory cost information — and if it is withheld or looks inflated, that you make a reasonable estimate of the cost of materials yourself. The responsibility for that figure being reasonable sits with you, not with the subcontractor who wrote the invoice.
Three months of returns and statements, a straight account of what is wrong and what it is costing, and a number on the gross payment status question.
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