Making Tax Digital for Income Tax is now live, and CIS subcontractors working as sole traders can already be inside the rules. The first mandatory group started on 6 April 2026, covering people whose qualifying self-employment and property income was more than £50,000 in the 2024 to 2025 tax year.
For construction subcontractors, one point causes particular confusion: the amount that reaches the bank after a contractor has taken CIS tax is not the figure used to decide whether the MTD threshold has been crossed. HMRC uses gross qualifying income before expenses and tax.
CIS registration and MTD are also separate. A subcontractor can be registered under the Construction Industry Scheme, have 20% deducted from payments every month and still need to sign up for MTD for Income Tax separately when the qualifying-income rules apply.
Scaffolding and refurbishment works on a London building in October 2026. Photo: London Construction Magazine.
Which CIS subcontractors have to use MTD?
MTD for Income Tax currently applies to individuals using Self Assessment, including sole traders. A CIS subcontractor operating as a sole trader therefore falls into MTD according to the same qualifying-income test as any other self-employed individual.
HMRC's current MTD timetable brings businesses into the system in three stages.
| Income tested | Qualifying income | MTD starts |
|---|---|---|
| 2024 to 2025 | More than £50,000 | 6 April 2026 |
| 2025 to 2026 | More than £30,000 | 6 April 2027 |
| 2026 to 2027 | More than £20,000 | 6 April 2028 |
Qualifying income means total gross income from self-employment and property before expenses and tax. Income from several self-employed businesses is combined, as is qualifying property income. PAYE wages, dividends, pensions and an individual's share of partnership profit are outside that calculation.
Limited companies are outside MTD for Income Tax on their company trading income. HMRC has also said partnerships will enter MTD in the future under a timetable still to be set.
The net CIS payment is not the MTD threshold figure
A registered CIS subcontractor is normally subject to a 20% deduction when the contractor verifies them. An unregistered subcontractor can have 30% deducted, while a subcontractor with gross payment status can receive qualifying payments without CIS tax being taken at source.
Those deduction rates do not change the MTD qualifying-income test. HMRC describes CIS deductions as advance payments towards the subcontractor's tax and National Insurance bill. A sole trader reporting CIS income records the total pay before deductions as income and records the CIS deductions separately.
Take a simple example. If a subcontractor earns £60,000 before CIS deductions and £12,000 has been deducted during the year, the relevant income figure is still £60,000. The £48,000 received after deductions is not the turnover figure used for the MTD threshold.
The same principle applies to a subcontractor with gross payment status. Receiving the full payment does not remove MTD obligations if qualifying income exceeds the relevant threshold.
HMRC's CIS guidance for subcontractors explains how gross payments and deductions are dealt with when tax is reported.
CIS registration does not register you for MTD
A subcontractor's CIS registration tells contractors how payments should be treated under the Construction Industry Scheme. MTD for Income Tax controls the separate digital record-keeping and reporting obligations attached to Self Assessment.
For people who should have entered MTD on 6 April 2026 but did not sign up, HMRC began automatically adding taxpayers to the service from September 2026 where its records showed qualifying income above £50,000. The process is being carried out in stages.
A subcontractor receiving an HMRC notification should check that MTD has been added to their online account, connect compatible software and start maintaining the required digital records. HMRC's automatic sign-up guidance sets out the steps for people added to the service.
What a CIS subcontractor needs to keep digitally
MTD requires digital records of self-employment income and expenses. On a construction business this can mean invoices, material purchases, tool and plant costs, vehicle and travel expenses and other business transactions being recorded through compatible software or a connected digital system during the year.
CIS adds another record stream. Contractors making deductions must provide a payment and deduction statement showing what they paid and what they deducted. The statement must be supplied within 14 days after the end of the relevant tax month, and subcontractors should retain it because HMRC can ask for evidence supporting a CIS deduction claim.
This is where bank feeds alone can mislead a subcontractor. A bank transaction may show only the net cash received after CIS has been taken. The accounting records still need the gross business income and the deduction treated correctly; recording only the net bank receipt understates turnover.
LCM's guide to MTD quarterly updates for construction sole traders looks at the wider record-keeping cycle. For CIS subcontractors, matching each contractor statement against the corresponding invoice and payment is one of the simplest controls to build into that process.
How CIS deductions work with quarterly updates
MTD quarterly updates are generated from the digital records held for the business. For standard update periods, the reporting windows run cumulatively from 6 April to 5 July, 5 October, 5 January and 5 April. Businesses using calendar update periods work to quarter ends of 30 June, 30 September, 31 December and 31 March.
The deadlines are the same under both methods: 7 August, 7 November, 7 February and 7 May. HMRC's quarterly update guidance confirms that each update is cumulative from the beginning of the tax year to the end of the latest update period.
HMRC's MTD guidance for CIS customers says subcontractors include CIS deductions in their quarterly process. At year end, HMRC can also add subcontractor CIS deduction information it already holds to the MTD tax return. The taxpayer must check that information before submitting the return.
The practical check is straightforward: contractor payment and deduction statements should reconcile with the CIS deductions showing in the subcontractor's records. Missing statements, duplicate deductions or a net payment recorded as turnover are easier to correct during the year than when the tax return is being prepared.
The next MTD deadline is 7 November 2026
For subcontractors already within MTD for the 2026 to 2027 tax year, the first quarterly deadline was 7 August 2026. The second is 7 November 2026, followed by 7 February and 7 May 2027.
The quarterly submissions do not replace the annual tax return. A person who entered MTD on 6 April 2026 must submit their MTD tax return for 2026 to 2027 by 31 January 2028. Their previous 2025 to 2026 Self Assessment return is still dealt with under the previous process and remains due by 31 January 2027.
Software needs to deal with CIS, not just MTD
HMRC requires compatible software capable of creating and storing digital records, sending quarterly updates and submitting the tax return. It can be an all-in-one accounting product or, in some cases, software that connects existing digital records such as spreadsheets to HMRC.
For a CIS subcontractor, HMRC compatibility is only the first test. The software also needs a workable method for recording gross subcontract income and CIS deductions without treating the tax taken by the contractor as an ordinary business expense.
Anyone who also operates as a CIS contractor has a second requirement. Monthly CIS contractor returns continue separately, so a sole trader working on both sides of the scheme should check whether the chosen software handles CIS contractor administration as well as MTD for Income Tax.
HMRC's software guidance includes all-in-one and bridging routes. LCM's construction MTD software guide looks specifically at the requirements of builders, tradespeople and subcontractors.
MTD penalties change after the first year
HMRC has given the first mandatory MTD cohort a limited concession on quarterly reporting penalties. There are no late-submission penalty points for missed quarterly update deadlines in the 2026 to 2027 tax year, although the digital records and outstanding quarterly updates still have to be dealt with before the annual MTD tax return can be submitted.
From the 2027 to 2028 tax year, a missed quarterly deadline normally attracts one penalty point. The threshold for quarterly MTD obligations is four points; reaching it triggers a £200 penalty, followed by another £200 for each subsequent missed submission deadline while the taxpayer remains at the threshold.
Late payment operates separately. In a taxpayer's first year under the new penalty regime, HMRC gives 30 days from the payment due date to pay in full or arrange a payment plan before late-payment penalties start. Late-payment interest still runs from the first day the tax is overdue. The current rates and conditions are set out in HMRC's MTD penalty guidance.
Frequently asked questions
Does CIS registration automatically register me for MTD?
No. CIS and Making Tax Digital for Income Tax are separate HMRC systems. A sole trader subcontractor must check their MTD position against the qualifying-income thresholds.
No. CIS and Making Tax Digital for Income Tax are separate HMRC systems. A sole trader subcontractor must check their MTD position against the qualifying-income thresholds.
Do CIS deductions reduce my income for the MTD threshold?
No. Qualifying income is based on gross self-employment and property income before expenses and tax. CIS deductions are advance payments towards tax, so they do not reduce the turnover used for the MTD test.
No. Qualifying income is based on gross self-employment and property income before expenses and tax. CIS deductions are advance payments towards tax, so they do not reduce the turnover used for the MTD test.
Do I still need MTD if I have gross payment status?
Yes, if you are a sole trader and your qualifying income is above the relevant MTD threshold. Gross payment status changes how CIS tax is collected; it does not change the MTD income test.
Yes, if you are a sole trader and your qualifying income is above the relevant MTD threshold. Gross payment status changes how CIS tax is collected; it does not change the MTD income test.
What if I am both a CIS contractor and subcontractor?
Your MTD obligations apply to your self-employment records and Income Tax reporting. Your CIS contractor obligations continue separately, including contractor verification, deductions and monthly CIS returns where required.
Your MTD obligations apply to your self-employment records and Income Tax reporting. Your CIS contractor obligations continue separately, including contractor verification, deductions and monthly CIS returns where required.
For subcontractors already inside the 2026 to 2027 MTD regime, the next quarterly update is due on 7 November 2026. The £30,000 qualifying-income threshold then brings the next group into MTD from 6 April 2027.
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Founder & Author, London Construction Magazine | Construction Testing & Investigation Specialist