MTD for Construction: Everything You Need to Know

Key Takeaways

• Making Tax Digital (MTD) for Income Tax started on 6 April 2026 for sole traders — including CIS subcontractors — with qualifying income over £50,000. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.

• "Qualifying income" is your gross self-employment turnover — before expenses and before CIS tax is deducted — so it catches more subbies than they expect.

• If you're in scope, you keep digital records, send HMRC four quarterly updates, and file a Final Declaration instead of the old annual Self Assessment return.

• CIS itself doesn't change: contractors still deduct 20% or 30%, and your deductions are reconciled — and any refund issued — at the Final Declaration stage, exactly as now.

• Limited companies are outside MTD for Income Tax for now; only sole traders and landlords are affected at this stage.

Making Tax Digital (MTD) for Income Tax is HMRC's new system that replaces the annual Self Assessment return with digital record-keeping and quarterly online updates. It began on 6 April 2026 for sole traders and landlords — including CIS subcontractors — with gross income over £50,000, and lower thresholds follow in 2027 and 2028. If you're a self-employed subbie above the threshold, it changes how you report your income, but not how CIS works.

What is Making Tax Digital?

MTD is HMRC's programme to move tax reporting fully digital — replacing paper records and one-off annual returns with software that keeps live digital records and files with HMRC through the year.

It's being rolled out in stages:

• MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. If you're VAT-registered, you're already doing it, and nothing here changes that.

• MTD for Income Tax is the new phase, rolling out from April 2026, and it's the one that affects most CIS subcontractors.

• Partnerships and limited companies remain outside MTD for Income Tax for now, with no confirmed start date.

MTD for Income Tax: who and when

You're brought into MTD for Income Tax based on your qualifying income, phased in by threshold:

From	Qualifying income over	Assessed on your
6 April 2026	£50,000	2024/25 tax return
6 April 2027	£30,000	2025/26 tax return
6 April 2028	£20,000	2026/27 tax return

HMRC looks at the qualifying income reported on your previous Self Assessment return to decide when you join. Once you're in, you stay in — even if your income later dips below the threshold in a single year.

The "qualifying income" trap for subcontractors

This is the point that catches subbies out. Qualifying income is your gross turnover from self-employment (and any property), before you take off a single expense and before any CIS tax is deducted. It is not your profit, and it is not what lands in your bank account.

So a subcontractor who invoices £55,000 of labour and materials across the year is over the £50,000 threshold and in scope from April 2026 — even if, after materials, tools, van, and other costs, their actual taxable profit is far lower. Because CIS is deducted from your gross payments, plenty of subbies are past the threshold without realising it. Property income counts too: if you have a rental as well, HMRC adds the gross figures together.

How MTD works for CIS subcontractors

Here's the reassuring part: MTD changes how you report, not how CIS works. Contractors still verify you and deduct 20% (or 30% if unregistered), and you still suffer those deductions on your labour exactly as before. What changes is the reporting around them.

Instead of one Self Assessment return a year, if you're in scope you will:

1. Keep digital records of your income and expenses in MTD-compatible software — no more shoebox of receipts and a year-end catch-up.

2. Send four quarterly updates to HMRC, each a running summary of your income and expenses for the year so far.

3. File a Final Declaration after the tax year ends, where you confirm your full figures, claim your allowances and reliefs, and reconcile your CIS deductions against your actual tax bill.

That Final Declaration is the point where your overpaid CIS is refunded — precisely as it happens under Self Assessment today.

The deadlines

For a standard tax-year set-up, the quarterly update deadlines are the same every year:

Update	Period covered	Deadline
Quarter 1	6 Apr – 5 Jul	7 August
Quarter 2	6 Jul – 5 Oct	7 November
Quarter 3	6 Oct – 5 Jan	7 February
Quarter 4	6 Jan – 5 Apr	7 May
Final Declaration	full tax year	31 January

So for the first MTD year (2026/27), the very first quarterly update is due 7 August 2026, and the first Final Declaration is due by 31 January 2028. (You can elect to use calendar quarters instead, ending 30 Jun, 30 Sep, 31 Dec and 31 Mar, with the same filing deadlines.)

MTD Penalties

Late submissions fall under HMRC's points-based penalty system: each missed deadline earns a point, and once you reach the threshold (four points for quarterly filers) a £200 penalty applies.

There's breathing room for year one, though: HMRC has confirmed it won't issue penalty points for late quarterly updates during 2026/27, the first year of MTD for Income Tax. But this only covers late quarterly updates — late Final Declarations and late tax payments can still be penalised as normal, so be careful not to get complacent.

What about limited companies?

Limited companies are outside MTD for Income Tax — they report through the Corporation Tax system (a CT600), and there's no confirmed date for MTD for Corporation Tax.

What software do I need?

You'll need HMRC-recognised MTD software for Income Tax — not just VAT. Common options include Xero, FreeAgent, QuickBooks and Sage, and spreadsheets are still allowed if linked to HMRC through recognised bridging software. If you have a good accountant, you won't need to worry about this.

How to prepare

• Check whether and when you're in scope using your last tax return's gross income.

• Choose and set up MTD-compatible software before your start date, not after.

• Get into the habit of digital record-keeping now — capturing income and expenses as you go, rather than at year-end.

• Keep every CIS payment and deduction statement, as you'll still need them to reconcile at the Final Declaration.

• Diarise the quarterly deadlines so the new rhythm doesn't catch you out.

(Or just speak to a construction-industry specialist accountant and you won't have to worry about any of the above.)

Frequently Asked Questions

Does MTD apply to CIS subcontractors? Yes, if you're a sole trader with qualifying income over the threshold — £50,000 from April 2026, £30,000 from April 2027, and £20,000 from April 2028. MTD for Income Tax applies to CIS subcontractors the same way it applies to any other sole trader. It changes how you report your income, but CIS deductions themselves carry on unchanged.

Does MTD replace CIS? No. This is a common misconception. CIS continues exactly as before — contractors still deduct 20% or 30% from your payments and pass it to HMRC. MTD only changes how you record and report your income and expenses, and your CIS deductions are reconciled against your tax bill at the Final Declaration, just as they are under Self Assessment now.

How is my income counted for the MTD threshold? On your gross turnover before expenses and before CIS is deducted — not your profit. So if you invoice more than £50,000 of construction work in a year, you're likely in scope from April 2026 even if your actual profit is much lower. If you also have property income, HMRC adds the gross figures together.

Do limited companies have to use MTD for Income Tax? No. MTD for Income Tax applies to sole traders and landlords, not limited companies. Companies report through Corporation Tax, and no start date has been set for MTD for Corporation Tax. So a subcontractor trading through a limited company is currently outside these rules.

When is my first quarterly update due? For a standard tax-year set-up, quarterly updates are due 7 August, 7 November, 7 February, and 7 May, with the Final Declaration by 31 January. If you came into MTD from April 2026, your first quarterly update was due 7 August 2026. HMRC isn't issuing penalty points for late quarterly updates in the first year, but late payments and Final Declarations can still be penalised.

Getting ready for MTD without the headache

MTD means new software, new deadlines, and a new quarterly rhythm — on top of running a construction business. Talk to the SiteLedger team on 01706 595 370 and we'll set you up on the right MTD-compatible software, handle your quarterly updates, and keep your CIS reconciliation clean.

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Written by the SiteLedger team — construction-specialist accountants. Last reviewed: July 2026. Rules and thresholds reflect the MTD for Income Tax rollout as it stands for the 2026/27 tax year; MTD is being phased in, so check GOV.UK for the latest position. This is general guidance, not personal tax advice — speak to us about your specific situation.

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