Last updated: 19 October 2026
Making Tax Digital (MTD) for Income Tax started on 6 April 2026, and the Construction Industry Scheme (CIS) had its own set of changes from the same date. If you are a self-employed subcontractor, a sole-trader contractor or run a construction company, this guide explains how the two systems fit together, who has to use MTD and when, and what to do now.
What Is Making Tax Digital?
MTD is HMRC’s move to digital tax records. It already applies to VAT for every VAT-registered business. For Income Tax, sole traders and landlords above an income threshold must keep digital records, send four quarterly updates a year through HMRC-recognised software and file their final return through that software.
What Is the Construction Industry Scheme?
Under CIS, contractors deduct tax from payments to subcontractors and pass it to HMRC: 20% for registered subcontractors, 30% for unregistered ones, and nothing for those with gross payment status. Contractors file a monthly CIS return by the 19th of each month. Subcontractors get credit for the deductions against their own tax bill.
How MTD and CIS Fit Together
- Self-employed subcontractors are sole traders, so MTD for Income Tax applies to them once their qualifying income is over the threshold. Their CIS deductions are still claimed against their tax bill, now through MTD software.
- Limited company contractors and subcontractors are not in MTD for Income Tax. They continue to reclaim CIS suffered through their payroll (EPS) and file Corporation Tax returns as normal.
- Contractors still file monthly CIS returns separately. MTD does not replace them.
Who Needs to Use MTD for Income Tax?
| Qualifying income | Based on tax year | MTD starts |
|---|---|---|
| Over £50,000 | 2024/25 | 6 April 2026 |
| Over £30,000 | 2025/26 | 6 April 2027 |
| Over £20,000 | 2026/27 | 6 April 2028 |
For a CIS subcontractor, qualifying income is the gross amount paid for your work before CIS deductions and before expenses, plus any property income. A plasterer paid £48,000 after 20% deductions has gross income of £60,000, so MTD applied from 6 April 2026.
Who Does Not Need to Use MTD for Income Tax?
- Limited companies (MTD for Corporation Tax has no start date yet).
- Partnerships, which will join at a later date.
- People whose qualifying income is under the relevant threshold.
- People who are digitally excluded or otherwise exempt.
CIS Changes From 6 April 2026
- Nil returns are back: a contractor who pays no subcontractors in a tax month must file a nil return within 14 days of the month end, unless they have told HMRC in advance that they will make no payments.
- Tougher fraud rules: if a business knew or should have known a payment was connected to fraud in the supply chain, HMRC can remove gross payment status immediately, assess the lost tax and charge a penalty of up to 30%, which can be passed to directors. A business that loses gross payment status this way cannot reapply for five years.
- Payments to public bodies such as local authorities are no longer treated as CIS contract payments.
Software You Need
Choose HMRC-recognised software that can record CIS deductions against each payment, such as Xero, QuickBooks, FreeAgent or Sage. Contractors also need software (or HMRC’s online service) for monthly CIS returns. Linking bank feeds and photographing receipts on site saves a lot of time.
Quarterly Deadlines for 2026/27
- 7 August 2026 – period to 5 July
- 7 November 2026 – period to 5 October
- 7 February 2027 – period to 5 January
- 7 May 2027 – period to 5 April
- 31 January 2028 – final return and balancing payment for 2026/27
See our Making Tax Digital deadlines guide for the full calendar.
Benefits of MTD for Construction Businesses
- You can see your tax position and CIS refund building up during the year.
- Fewer missing receipts for materials, tools, van costs and protective clothing.
- Faster, more accurate CIS tax refunds after the year end.
- Better cash flow planning for payments on account.
Challenges to Plan For
- Recording every CIS statement promptly and checking it matches what you were paid.
- Keeping records up to date when you work across several sites and contractors.
- Learning new software, and choosing between standard (6 April) and calendar quarters.
What Happens If You Do Not Follow MTD?
For 2026/27 there are no penalty points for late quarterly updates, but you must send them before filing your final return. From 6 April 2027, each missed quarterly deadline earns a point, and four points trigger a £200 penalty, with a further £200 for each later missed deadline. Late returns and late payments are already under the new penalty rules. Missing CIS monthly returns carries separate penalties.
What Should Contractors and Subcontractors Do Now?
- Check your gross income for 2024/25 and 2025/26 against the thresholds.
- Sign up on GOV.UK or ask your accountant to do it for you.
- Set up recognised software and record your CIS statements in it.
- Contractors: review nil return obligations and your supply chain checks.
- Keep your CIS registration details up to date. See how to register for CIS.
Frequently Asked Questions
Is my MTD income threshold based on what I receive after CIS deductions?
No. It is based on your gross income before CIS deductions and expenses.
I trade through a limited company. Does MTD affect me?
Not MTD for Income Tax. Your company still files Corporation Tax returns and reclaims CIS deductions through its payroll. If you are VAT-registered, MTD for VAT already applies.
Can I still claim a CIS refund under MTD?
Yes. Your CIS deductions are set against your tax bill when you file the final return, and any overpayment is repaid.
Do I need to file a CIS nil return if I paid no subcontractors this month?
From 6 April 2026, yes, unless you have told HMRC in advance that you will make no payments for that month.
Get Help With MTD and CIS
Accotax looks after subcontractors and contractors across the construction industry, from CIS registration and monthly returns to MTD quarterly updates and refunds. Talk to our contractor accountants or contact us for a fixed-fee quote.
