Making Tax Digital for CIS subcontractors and self-employed construction workers

Most subcontractors we speak to are not worried about tax rules in the abstract. They want to know three things: does this affect me, when does it start, and what do I actually have to do differently. This guide answers those questions for people working under the Construction Industry Scheme (CIS): bricklayers, joiners, groundworkers, plasterers, electricians, plant operators and everyone else paid by a contractor rather than by an employer.

Who Making Tax Digital applies to, and when

Making Tax Digital for Income Tax (often shortened to MTD for Income Tax) applies to individuals with qualifying self-employment and property income. The first mandatory phase began on 6 April 2026; later phases follow in 2027 and 2028. Your start date depends on your combined gross self-employment and property income before expenses from an earlier tax year.

Qualifying income over £50,000 in 2024–25 means you should already be using MTD from 6 April 2026, unless exempt. Over £30,000 in 2025–26 brings MTD in from 6 April 2027; over £20,000 in 2026–27 brings it in from 6 April 2028. Exemptions can apply, including possible digital exclusion. Check your own position. See our Making Tax Digital service page or our general MTD for Income Tax guide.

Two points are worth knowing now. First, being inside CIS does not exempt you; CIS is a deduction scheme, not a reporting regime, and it sits alongside MTD. Second, if you trade through a limited company, MTD for Income Tax does not apply to the company’s profits, although it can still apply to you personally if you have other self-employment or property income.

GOV.UK: check whether and when MTD for Income Tax applies (opens in a new tab).

HMRC is now signing up some people it identifies as required to use MTD for 2026–27, but you remain responsible for checking your position. Do not wait for a letter to check. See GOV.UK: what to do if HMRC has signed you up for MTD for Income Tax (opens in a new tab).

What counts as qualifying income

“Qualifying income” is the test HMRC uses to decide whether you are in scope. In broad terms it is your gross self-employment turnover plus your gross property income, added together, before expenses.

For a subcontractor, two things catch people out:

• It is gross, not net. Your qualifying income is based on what you invoiced or were credited on your CIS statements, before the CIS deduction and before materials or other costs. A subcontractor who receives far less in the bank than they invoiced can still be in scope.
• Income sources are combined. Groundwork by day and a rented flat in the evening are two sources but one qualifying income figure. See other self-employment or property income below.

What digital records actually mean

Digital records do not mean a photograph of a carrier bag of receipts. They mean each item of business income and expense recorded, in a digital form, in compatible accounting software that can send information to HMRC. In practice that means:

• every payment you receive from each contractor, recorded individually;
• the CIS deduction shown on each payment;
• every business cost recorded with its date, amount and category;
• a digital copy of the underlying invoice, statement or receipt kept with it.

You do not have to keep paper as well once the digital record exists, but you do have to be able to produce the evidence behind a figure. Recording as you go is the whole point: a quarterly deadline is comfortable if the records are current and painful if they are not.

Quarterly updates versus your tax return

Under MTD you send a quarterly update for each business: a summary of income and expenses by category for the period, sent from your software. Quarterly updates are cumulative summaries, not four mini tax returns: they do not include reliefs, allowances or adjustments, and they do not create four separate tax bills.

Quarterly updates do not replace your annual tax return, which you submit through compatible software. Your final position is still settled once a year, bringing in accounting adjustments, other income, reliefs, allowances and your CIS deductions, and that is what determines the tax and National Insurance you owe or the refund you are due. Tax payment dates do not change solely because of MTD.

The practical difference for a subcontractor is timing rather than substance. Instead of one push after the tax year ends, the bookkeeping happens through the year, which also means you know where you stand well before the bill arrives.

CIS deductions and why they still matter

When a contractor pays you, they deduct tax from the labour element of your payment and pay it over to HMRC. That deduction is a payment on account of your own tax; it is not a final tax and it is not a charge on your materials.

• Verification matters. Deductions are made at the standard rate if you are registered under CIS and at the higher rate if you are not verified, so being registered and verified correctly makes a real difference to your cash flow.
• Statements are your evidence. Contractors must give you a payment and deduction statement for each period. Those statements are how your deductions are claimed back, so a missing one is money at risk.
• Materials and other costs. Deductions should not be taken from properly evidenced materials, plant or equipment you have actually hired from a third party and paid for, or certain other costs. There is no notional deduction for plant or equipment you own yourself. See HMRC’s CIS 340 guide for contractors and subcontractors (opens in a new tab). Poorly worded invoices are a common cause of over-deduction.
• Reconciliation is the win. Because deductions are taken from gross labour while your tax is calculated on profit, many subcontractors have paid more during the year than they finally owe. That is set against your liability when the year is finalised, and can result in a repayment. Whether there is a repayment depends entirely on your own figures, so treat anyone promising a guaranteed refund with caution.

Keeping your CIS statements in the same place as your digital records, month by month, is the single most valuable habit for a subcontractor. See our subcontractor and CIS service page.

Capturing income and expenses on site

Site work does not lend itself to filing. What works, in our experience:

• A separate business bank account. The strongest single step. It turns your bank feed into most of your bookkeeping and stops the endless question of whether a payment was personal.
• Photograph receipts at the merchant counter, not at the end of the month. Fuel, timber, fixings and PPE receipts fade and get lost.
• Record mileage as you go, with the date, journey and reason. Retrospective mileage claims are the hardest thing to evidence.
• File CIS statements the day they arrive, and chase any that do not.
• Invoice consistently, showing labour and materials separately so deductions are applied to the right element.

Common allowable expenses

A cost is allowable if it is incurred wholly and exclusively for your business. Where something has both business and private use, only the business proportion is claimed, and you need a reasonable basis for the split. Typical categories for construction trades include:

• materials and consumables bought for jobs;
• tools and small equipment, with larger items treated as capital;
• plant, van and equipment hire;
• protective clothing and branded workwear (ordinary clothing is not allowable);
• vehicle costs: either actual running costs with a private-use adjustment, or the flat mileage rate. You cannot mix the two for the same vehicle in the same period;
• subsistence in limited circumstances, such as travel away from your normal pattern of work;
• public liability and tool insurance;
• trade subscriptions, scheme memberships and required cards or tickets;
• training that maintains or updates the skills of your existing trade;
• phone and internet, business proportion only;
• use of home for admin and quoting, on a reasonable basis;
• accountancy and bookkeeping fees;
• bank charges and interest on genuine business borrowing;
• payments to other subcontractors you engage, with CIS handled correctly.

Two caveats worth stating plainly. Travel between home and a single long-term site is often not allowable even though it feels like work travel, and the position depends on your working pattern. And training that gives you a genuinely new trade is usually capital rather than an expense. Both are worth a conversation rather than a guess.

Records to retain, and for how long

• sales invoices and, where you work on statements, contractor statements;
• CIS payment and deduction statements for every contractor, every month;
• purchase invoices and receipts, including merchant accounts;
• business bank and card statements, and finance or hire agreements;
• mileage records or vehicle running costs;
• records of tools and equipment bought and sold;
• details of anyone you pay, whether employed or subcontracted.

As a general rule the self-employed should keep records for at least five years after the 31 January filing deadline for the relevant tax year, and longer where an enquiry is open. Keep purchase and disposal paperwork for larger assets for as long as you own the asset.

Other self-employment or property income

Plenty of subcontractors have something else going on: a van hired out, a second trade, a rental property, or a partner’s business run alongside. Under MTD, each business is reported separately in its own quarterly updates, but the qualifying income test looks at your combined gross self-employment and property income. So a modest trade plus a modest rental can bring you into scope earlier than either would alone.

If you have property income, our landlord records guide covers what to keep on that side. If you also do paid content or media work, our guide for content creators may be relevant.

Practical steps for current and later phases

1. Find out which tax year brings you into scope, based on your own figures.
2. Open a separate business bank account if you do not have one.
3. Get set up on compatible cloud accounting software and connect the bank feed.
4. Agree who does the bookkeeping, and to what rhythm. Monthly beats quarterly panic.
5. Confirm your CIS registration and verification status with your contractors.
6. Tidy your opening position so the first digital year starts from correct figures.
7. Diarise the quarterly updates and annual tax return deadlines.

If you should already be using MTD, check your position now and arrange any outstanding reporting. If you join a later phase, setting up records early makes the transition easier.

How Bee & Co can help

We work with subcontractors across the UK as a cloud-based practice, so you do not need to drive anywhere or hand over a box of paperwork. We can:

• tell you whether and when MTD for Income Tax applies to you;
• set up compatible software and connect it to HMRC;
• keep your bookkeeping current, or check work you do yourself;
• reconcile your CIS deductions to your contractor statements;
• prepare and submit quarterly updates and your annual tax return through compatible software;
• prepare your Self Assessment and explain what you owe, or what is coming back;
• advise on whether a sole trade, partnership or company suits you.

See our subcontractors & CIS services, taxation services and planning or get in touch and we will tell you plainly where you stand.

This guide is general information about UK tax and is not advice for your particular circumstances. Rules, rates and Making Tax Digital start dates change, so please check with us before acting.