MTD for Income Tax and CIS: how the two fit together for subcontractors

acrenvo.com/guides/mtd-cis-subcontractors, last reviewed 25 October 2026

Darren is fictional, but his working year will be familiar to a lot of people in construction. He is a self-employed plasterer who works for two main contractors, and both of them pay him under the Construction Industry Scheme (CIS), so a slice of every payment goes to HMRC before the money reaches his account. His income is high enough that he now has to use Making Tax Digital (MTD) for Income Tax as well, and he wants to know how the two fit together. Does MTD change his deductions? Do they go into his quarterly updates? And who makes sure they are counted at the end of the year? This guide walks through what GOV.UK says about each of those questions, and where its guidance is still thin.

Many people in construction are in the same position. HMRC’s figures by industry show that, of the 864,000 people with qualifying income over the first MTD threshold in the 2023 to 2024 tax year, 251,000 worked in construction. HMRC counts 224,000 of them as self-employed only and 27,000 as landlords too. Those figures are rounded to the nearest 1,000 and cover construction as a whole, so not everyone in them is paid under CIS.

What CIS does, in GOV.UK’s words

MTD works alongside CIS, so it helps to start with what the scheme itself does. GOV.UK’s guide for subcontractors explains who it applies to. You should register for the Construction Industry Scheme (CIS) if you work for a contractor and you’re one of the following:

• a sole trader
• the owner of a limited company
• a partner in a partnership or trust

Under CIS, a contractor must deduct 20% from your payments and pass it to HM Revenue and Customs (HMRC). These deductions count as advance payments towards your tax and National Insurance bill. If you do not register for the scheme, contractors must deduct 30% from your payments instead. You do not need to register for CIS if you’re an employee.

So the money a contractor keeps back is tax Darren has paid early, and it is set against his bill once the year is finished.

Some subcontractors are paid in full instead. Having gross payment status means contractors will pay you in full, without deductions. You’ll pay all your tax and National Insurance at the end of the tax year. If that is you, there are no deductions for HMRC to add later, but the rest of this guide on records and quarterly updates still applies.

What changes when MTD starts

GOV.UK’s MTD guidance does not describe any change to how contractors take deductions, so Darren’s contractors carry on sending him a statement each month. What changes is how he keeps his own records and reports his income: he keeps digital records of his self-employed income and expenses in compatible software, sends a quarterly update to HMRC through that software, and finishes the year with a tax return sent the same way.

These guides follow a sole trader like Darren. A limited company is outside MTD for Income Tax, and GOV.UK handles a company’s deductions differently: if you’re a limited company, use your company’s payroll scheme to pay tax with your deductions. If you start paying subcontractors of your own, the guide to CIS monthly returns for sole traders who pay subcontractors explains what the scheme asks of you as a contractor.

What goes into your quarterly updates

GOV.UK’s guidance on quarterly updates explains what is sent. Your quarterly updates will include totals for each income and expense category you used to create your digital records. HMRC will not receive details of individual receipts or invoices in your quarterly updates.

The categories themselves are set out in HMRC’s quarterly update direction. For income from self-employment, the income categories are turnover and other business income, and the rest are expense categories. One of those, “Construction industry — payments to subcontractors”, is for a business that pays subcontractors, not for the deductions taken from Darren.

In practice, this is a question to put to your software provider or an accountant before your first update, because it decides how your CIS income is entered in the software from the start. The guide to your monthly CIS statements explains what each statement shows, which is where both figures come from.

Once an update has gone, you can see an estimate of your tax. After you send an update, you can get an estimate of your tax bill for your self-employment and property income for the tax year to date, in both your compatible software and your HMRC online services account. As part of your estimate, HMRC will include any other information it already has. GOV.UK says the estimate you see after each update includes other information HMRC already has, but it does not say whether your CIS deductions are part of that estimate during the year.

At the end of the year, HMRC adds your deductions

The one place GOV.UK’s MTD guidance names CIS is in its guidance on submitting your tax return. If HMRC has information about your other income sources, HMRC will add them to your tax return for you. The items it lists include “Construction Industry Scheme (CIS) — subcontractor deductions”.

After HMRC has added this information, you can find it in either your software (when you ask for a calculation) or your HMRC online services account. You must check this information before you submit your tax return. For Darren, that means setting the total HMRC shows beside his own monthly statements before he sends the return, because a missing month or a wrong figure is far easier to sort out before the return goes than after.

GOV.UK’s guidance on paying tax and claiming back deductions then explains what happens to them. HMRC will work out how much tax you owe and take off any deductions taken by contractors. If you still owe tax after this, you’ll need to pay it by 31 January following the end of the tax year. If you’re due a tax refund, HMRC will pay the money back.

If the deductions come to more than the tax Darren owes, the guide to getting CIS deductions back explains what GOV.UK says about the refund, and the guide to year-end adjustments and your tax return covers the rest of the year-end steps.

HMRC says more help is on the way

HMRC has said its CIS guidance is not finished. In its update for software developers, it wrote that HMRC continues to improve guidance based on feedback from customers, agents and software developers. Among the areas it named was “additional support for Construction Industry Scheme (CIS) customers”. Until that arrives, the safest course is to keep every monthly statement, ask your software provider how it handles CIS, and check the figures HMRC adds before you submit. The guide to MTD software for CIS subcontractors shows what HMRC’s software list says about each product we compare.

Questions about MTD and CIS

You may also find this page useful: Combining rental and self-employment income for the MTD threshold.