MTD for CIS Subcontractors: What You Need to Know

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Making Tax Digital (MTD) is changing the way many self-employed people in the UK keep their business records and report their income to HMRC, and if you work in construction as a CIS subcontractor, you may need to change the way you manage your accounts, even if a contractor already deducts tax from your payments before paying you.

The Construction Industry Scheme (CIS) and Making Tax Digital are two different HMRC systems, and understanding how they work together is important because being registered under CIS does not automatically mean that you are exempt from MTD, nor does having tax deducted at source mean that you no longer need to report your income through Self Assessment.

MTD for CIS Subcontractors: What Making Tax Digital Means for Construction Workers?

Making Tax Digital for Income Tax is a system that requires eligible self-employed people and landlords to keep digital records and send income and expense updates to HMRC using compatible software, instead of relying entirely on the traditional process of keeping records throughout the year and submitting one annual Self Assessment tax return.

For CIS subcontractors, this means that if you work as a sole trader or self-employed construction worker and your income falls within the MTD rules, you will need to keep digital records of your business income and expenses and send quarterly updates to HMRC, followed by a final declaration after the end of the tax year.

For example, if you work as a self-employed bricklayer, plasterer, electrician or roofer and receive payments from construction contractors, you may need to use MTD-compatible accounting software to record your invoices, materials, travel costs and other allowable business expenses.

It is important to remember that CIS and MTD serve different purposes, because CIS deals with tax deductions made by contractors from subcontractor payments, while MTD changes how certain taxpayers maintain records and report their income to HMRC.

Does Making Tax Digital apply to CIS subcontractors?

Yes, Making Tax Digital can apply to CIS subcontractors who operate as self-employed individuals, provided they meet the qualifying income requirements and do not qualify for an exemption.

The fact that a contractor deducts tax from your payments under CIS does not automatically exempt you from MTD, and you should not assume that HMRC already has all the information it needs simply because your contractor reports your payments and deductions through the CIS system.

Whether you need to join MTD depends mainly on your qualifying income, your business structure and any applicable exemptions, rather than simply on whether you are registered under CIS.

If you operate through a limited company, the position is different because MTD for Income Tax is aimed at individuals who receive qualifying income from self-employment or property, rather than companies reporting their profits through Corporation Tax.

If you are unsure how the rules apply to your circumstances, you can read our guide on whether Making Tax Digital affects CIS, which explains the relationship between the two systems.

When does MTD become compulsory for CIS subcontractors?

MTD for Income Tax is being introduced in stages, with the start date depending on your qualifying income from self-employment and property.

The planned timetable is as follows:

• From 6 April 2026: individuals with qualifying income of more than £50,000.
• From 6 April 2027: individuals with qualifying income of more than £30,000.
• From 6 April 2028: individuals with qualifying income of more than £20,000, under the announced expansion of the rules.

These thresholds refer to qualifying income, not your profit after deducting business expenses. You should check the latest HMRC guidance to confirm the rules and any changes that may affect your circumstances.

For example, if you are a CIS subcontractor with turnover of £55,000 and allowable business expenses of £15,000, your profit would be £40,000, but your qualifying income could still be above the £50,000 threshold because the threshold is based on income rather than profit.

The tax deducted by your contractor under CIS does not, by itself, reduce your turnover for the purpose of assessing whether you meet the MTD income threshold.

Does CIS tax deducted at source count towards the MTD threshold?

CIS subcontractors often receive payments after their contractor has deducted tax, so it is important to understand the difference between your gross income and the amount that reaches your bank account.

For example, imagine that you issue an invoice for £1,000 for construction work and the contractor deducts £200 in CIS tax before paying you the remaining £800.

Your business income is generally recorded using the gross amount of £1,000, while the £200 deduction is recorded separately as tax already deducted on your behalf.

This distinction matters when assessing whether you meet the MTD qualifying income threshold, because you should not calculate your income using only the net payments received into your bank account.

The same principle applies when preparing your Self Assessment tax return, where CIS deductions are taken into account when calculating the tax you still owe or any refund due.

Do CIS subcontractors still need to submit a Self Assessment tax return?

Yes, MTD does not automatically remove the need for CIS subcontractors to complete their tax obligations, and you should not assume that quarterly reporting replaces every part of the existing Self Assessment process.

If you are required to use MTD for Income Tax, you will generally need to keep digital records, submit quarterly updates and complete a final declaration for the tax year using the relevant digital process.

The final declaration is important because it allows you to confirm your income, claim relevant tax reliefs and allowances, account for CIS deductions and settle your overall Income Tax and National Insurance position.

If you do not fall within the MTD rules, you may continue using the existing Self Assessment process, subject to the normal registration, filing and payment requirements that apply to you.

You can also read our guide on how to register for MTD for Income Tax to understand the registration process and what you may need to do before your start date.

Do CIS subcontractors need to buy MTD software?

If you are required to use MTD for Income Tax, you will need software that meets HMRC’s requirements, but this does not necessarily mean that you must purchase an expensive accounting package.

Depending on your circumstances, you may be able to use free or low-cost software, a suitable spreadsheet combined with compatible bridging software, or a more complete accounting system that records your transactions and prepares the necessary updates.

When choosing software, check that it supports the type of construction business you operate, allows you to record CIS deductions correctly and can handle your quarterly updates and final declaration.

You should also consider whether you need help with bookkeeping, checking CIS deductions and claiming allowable expenses, because software can make reporting easier but it cannot guarantee that your records or tax calculations are correct.

How can CIS subcontractors prepare for Making Tax Digital?

The best way to prepare is to review your current bookkeeping arrangements before your MTD start date, check your gross income against the relevant threshold and make sure you understand how to record your invoices, expenses and CIS deductions.

If you currently keep paper receipts or record your income in a basic spreadsheet, you may need to change your approach so that your records can be maintained digitally and your quarterly updates can be submitted through compatible software.

It is also worth checking your previous Self Assessment tax return, because HMRC uses qualifying income from an earlier tax year to determine when you need to start using MTD.

If you use an accountant, ask whether they can help you select suitable software, organise your records and submit the required updates on your behalf.

Preparing early can help you avoid last-minute problems, reduce the risk of missing reporting deadlines and make it easier to understand your tax position throughout the year.

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