Construction Industry Scheme (CIS) itself isn't changing. Your contractor still deducts tax, pays it to HMRC, and gives you monthly deduction statements. Those deductions still count towards your tax bill, and any refund you're owed is still worked out as before, just through the new digital system.
Key Takeaways
What Actually Changes for CIS Subcontractors Under MTD?
First, untangle two people who get mixed up all the time: the contractor and the subcontractor. Being CIS-registered doesn't decide whether MTD applies to you. Whether you're inside or outside Construction Industry Scheme has no bearing on the MTD threshold test; it's your gross income from self-employment and property that determines whether you're in scope.
If you're a contractor, nothing changes
You still verify subcontractors with HMRC, apply the right deduction rate, file the monthly CIS300 by the 19th, pay over by the 22nd if you pay electronically, hand out deduction statements within 14 days of the tax month end, and file nil returns in quiet months. MTD for Income Tax is about your own income tax as a sole trader — it doesn't touch any of that.
If you're a subcontractor, the change is only in how you report your own income tax
Right now, you file one Self-Assessment a year: gross turnover in, expenses off, CIS already suffered claimed back as a credit. Under MTD, that becomes three things:
- Keep your income and expenses in MTD-compatible software as you go.
- Send HMRC a quarterly update for each business.
- File a Final Declaration by 31 January after the tax year ends — that's where your full position is worked out and any CIS refund lands.
Note:
Here's the part people panic about needlessly: the quarterly updates are not four mini tax returns. They're running totals of income and expenses. They don't calculate your tax and sending one doesn't trigger a bill. HMRC just uses them to keep a live picture of where you stand.
Working Out Your MTD Qualifying Income as a CIS Subcontractor
This is the biggest tripwire for CIS subcontractors. It can pull you into MTD a year or two earlier than you'd guess.
Qualifying income is your total gross income from self-employment and property in a tax year, before any expenses come off. HMRC's guidance puts it plainly: they look at gross turnover. For construction that means your pay before the contractor deducts any CIS. HMRC counts what you earned, not what reached your account after the deduction.
For example,
Take Priya, a self-employed electrician registered under Construction Industry Scheme. In 2024/25 she invoices £58,000 for her labour.
Her contractors deduct CIS at 20%, sending £11,600 to HMRC, so she banks £46,400. She assumes she's under the £50,000 threshold. She isn't. Her qualifying income is the full £58,000, so she's in MTD from 6 April 2026.
The year HMRC checks matters too. They look at the self-assessment tax return due just before the MTD year starts. The 6 April 2026 phase is judged on your 2024/25 return (due 31 January 2026), the 2027 phase on 2025/26, the 2028 phase on 2026/27. HMRC usually writes to you if you're over, but don't wait for the letter. Checking and signing up is your job, and you'll need to have filed a return in the last two years to do it.
Note
Two last traps. Not all income counts: PAYE wages, partnership profit, dividends, pensions and savings interest all sit outside qualifying income, so a subcontractor with a part-time PAYE job only counts the self-employment and property side. And getting out is slow. Once you're in, you generally stay in until your qualifying income drops below the threshold for three years running.
If You Also Have Rental Income
Plenty of CIS subcontractors are landlords too, and that combination can tip you into MTD earlier than you'd think. HMRC doesn't look at each income source on its own. It adds your gross self-employment and property income together, before expenses. So if you invoice £40,000 from subcontracting and take £15,000 in gross rent, your qualifying income is £55,000, not two comfortable figures under the limit. That clears the £50,000 threshold, so you're required to use MTD for Income Tax, even though neither source crosses £50,000 by itself.
In practice, that means keeping separate digital records for both sides of your income, the subcontracting and the property. You send quarterly updates for each business rather than one combined update, though the good news is the deadlines line up, so you're not juggling two different reporting calendars.
How Construction Industry Scheme Deductions Fit into Quarterly MTD Updates
Your quarterly MTD updates show the total income and expenses recorded for your business. Always record the full invoice amount before CIS is deducted. Construction Industry Scheme is tax paid in advance, not a business expense, so it should not reduce your turnover.
You do not send CIS statements with each quarterly update. Instead, use them to check that your invoices, bank payments, CIS deductions and accounting records all match. Keeping everything up to date during the year makes both your quarterly updates and final tax return much easier to complete.
One habit worth building:
Also, keep labour, materials and VAT clearly separated on your invoices. CIS is worked out after removing VAT and genuine materials you paid for, so a clear invoice makes everything much easier to check and reconcile.
What Happens to Your CIS Refund Under MTD?
MTD does not remove your CIS refund. It only changes how the figures are reported.
Your contractor still deducts CIS and pays it to HMRC. Those deductions still count as advance payments towards your tax and National Insurance. When you submit your MTD tax return, your CIS deductions are included and checked against your final tax bill.
If too much CIS has been deducted, HMRC can still refund the difference. The key is to keep your CIS deduction statements throughout the year and check the figures carefully before submitting your return.
How UKPA Can Help?
UK Property Accountants can help you prepare your MTD records, check your CIS deductions, and submit everything correctly.
MTD Deadlines & Penalties that CIS Subcontractors Should Know
MTD changes how penalties work. For taxpayers within MTD for Income Tax, late submission penalties follow the new points-based penalty system instead of the previous fixed Self-Assessment late filing penalty
Quarterly updates are just summaries of income and expenses, not full tax returns. For standard tax-year quarters, the deadlines are:
Update period | Deadline |
|---|---|
6 April to 5 July | 7 August |
6 July to 5 October | 7 November |
6 October to 5 January | 7 February |
6 January to 5 April | 7 May |
You get some slack in the first year. For 2026/27, HMRC won't charge penalties for late quarterly updates. But you still have to keep digital records and send every update before you can file your return, so ignoring them isn't really an option.
From 2027/28, the points kick in. Miss a quarterly update or a tax return deadline and you pick up a point. Four points and HMRC charges you £200, with another £200 for every deadline you miss after that. The points don't clear quickly once you hit four, so the honest advice is just to not get there in the first place.
Late payment is its own thing. Interest runs from the due date no matter what, so paying late always costs you something. In your first year on the new rules you do get 30 days to pay or agree a payment plan before penalties start. That drops to 15 days the following year, so it's worth treating the extra time as a one-off, not something to lean on.
Frequently Asked Questions
Yes. If you are a self-employed sole trader under CIS, MTD for Income Tax may apply based on your total qualifying income from self-employment and property before expenses. The thresholds are more than £50,000 since April 2026, £30,000 from April 2027 and £20,000 from April 2028.
No. Monthly CIS returns remain the contractor’s responsibility. MTD only changes how self-employed individuals keep digital records, send quarterly updates and submit their annual tax return.
It does not change the basic process. CIS deductions are set against your final tax and National Insurance bill, and HMRC will normally refund any excess. You should still check that HMRC’s deduction figures are correct.
Yes, but it must be connected to MTD-compatible software for submissions to HMRC. Your records must flow digitally to the software, so you should not manually copy and paste figures between systems.
You can apply to HMRC for an exemption if it is not reasonable for you to use digital software because of factors such as age, disability, religious beliefs or lack of internet access. If exempt, you must still complete Self-Assessment as normal.
Conclusion
Making Tax Digital changes how CIS subcontractors report their income, not how Construction Industry Scheme itself works. If your self-employment and property income together go over the threshold, you'll need to keep digital records, send updates every quarter and file your annual return using compatible software. CIS deductions, statements and refunds still work the way they always have.
It pays to sort this out before the deadline forces your hand. Once you've got the right software and Once your records are set up, MTD becomes a routine of keeping digital records, sending quarterly updates and completing your annual tax return.
WORK WITH UK PROPERTY ACCOUNTANTS
UK Property Accountants can help you get set up, manage the quarterly reporting and make sure your CIS deductions are claimed correctly through it’s own platform called Rental Bux.
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