.png)
Making Tax Digital for Income Tax has changed the way many self-employed workers report their earnings to HMRC. And if you’re a subcontractor under the Construction Industry Scheme (CIS), you might be wondering whether MTD changes CIS deductions.
The good news is that CIS isn’t being replaced. Contractors still deduct tax at source but MTD does change how subcontractors record, track and report their income, expenses and CIS deductions. This guide explains more.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is HMRC’s initiative to modernise tax reporting. It moves away from paper-based records and annual processes and instead requires eligible taxpayers to:
- Keep digital business records
- Use compatible software
- Submit quarterly updates to HMRC
- Complete a year-end declaration that confirms their tax position
It applies to self-employed individuals, landlords and CIS subcontractors operating as self-employed workers. Unlike landlords, CIS subcontractors aren’t treated as a separate category for MTD purposes. Instead, they fall under self-employed rules.
The idea is that regular reporting throughout the year will give taxpayers and HMRC a more accurate picture of income and tax liabilities.
Do CIS subcontractors have to use MTD?
Yes, if your income meets the relevant thresholds set by HMRC, you’ll need to comply with MTD for Income Tax. From April 2026, those earning over £50,000 were required to comply. From April 2027, it applies to those earning over £30,000 and from April 2028 those earning over £20,000 will be included.
So, if you’re a CIS subcontractor operating as a sole trader and your income exceeds the qualifying income threshold, you’ll need to keep digital records and submit quarterly updates using MTD-compatible software.
The difference between CIS and MTD
MTD and CIS serve different purposes:
- CIS determines how much tax is deducted from your payments
- MTD determines how income and tax information is reported to HMRC
So, in short, CIS deductions continue as normal but MTD changes the reporting process around them.
How CIS deductions work under MTD
One of the biggest misconceptions is that MTD replaces CIS deductions but this is wrong. Contractors still deduct tax before paying subcontractors and these CIS deductions are still sent directly to HMRC. Monthly CIS statements are still provided and tax continues to be deducted at the applicable rate.
In addition to this, and new under MTD, CIS subcontractors need to ensure that:
- Income is recorded digitally
- CIS deductions are recorded accurately within bookkeeping software
- Expenses are categorised correctly
- Quarterly submissions reflect up-to-date business information
Quarterly reporting for CIS subcontractors
One of the biggest changes introduced by MTD is quarterly reporting. Now, instead of waiting until the end of the year to provide business information, subcontractors submit updates every three months.
Although these reports include business income, expenses and CIS deductions they’re not a final tax return or calculation. They’re simply an overview of your position and subcontractors still need to complete a final review to confirm their tax position at the end of the year.
This means that your CIS deductions become part of MTD digital records maintained throughout the year.
CIS tax returns - what can you claim?
While the way you report tax has changed, allowable expenses remain the same. Some of the most common allowable expenses include:
- Tools and equipment (drills, saws, measuring equipment)
- Materials (timber, cement, bricks, wiring, plumbing and paint supplies)
- Personal Protective Equipment (safety boots, hard hats, hi-vis jackets, gloves, goggles)
- Travel costs
- Phone and administrative costs (accounting software, office supplies)
- Training and certifications
Expenses that aren’t usually covered include private travel, personal clothing, non-business meals and personal expenses unrelated to work.
Remember, under MTD, expenses must now be recorded digitally and submitted through quarterly updates rather than being gathered at the end of the year.
How CIS and MTD work together
Rather than replacing one another, CIS and MTD work together. Under MTD:
- CIS deductions continue to be reported by contractors to HMRC
- Subcontractors maintain digital records of income and deductions
- Quarterly submissions provide regular business updates
- HMRC uses available data to build a clearer picture of tax liabilities
Then at year-end, everything is brought together so that subcontractors can confirm their total business income, allowable expenses, CIS deductions already paid, adjustments required and final taxable profit.
Common mistakes CIS subcontractors make under MTD
There are several common mistakes to avoid including:
- Not recording CIS deductions correctly - This can result in discrepancies between your records and HMRC’s information.
- Mixing personal and business expenses - This can make it harder to identify allowable expenses.
- Assuming CIS replaces tax return obligations - If you meet the relevant MTD threshold, MTD reporting will always apply.
- Missing quarterly submission deadlines - In doing so, you risk fines and penalties.
Frequently asked questions
Does Making Tax Digital replace CIS deductions?
No, CIS deductions work in the same way as before. MTD changes how income, expenses and deductions are recorded and reported.
Do CIS subcontractors need to submit quarterly returns?
Yes but only if they meet MTD qualifying income thresholds. From April 2026 anyone earning over £50,000 must comply, April 2027 includes those earning over £30,000 and from April 2028 anyone earning over £20,000 will need to comply.
Can I still claim expenses under CIS with MTD?
Yes, allowable expenses remain unchanged but they do need to be recorded digitally and included in MTD reporting.
Will CIS tax still be deducted at source under MTD?
Yes, contractors will still deduct CIS tax before making payments to subcontractors.
How Coconut can help
Making Tax Digital has changed how CIS subcontractors report their finances but it doesn’t change how CIS works. CIS deductions are still made at source, allowable expenses can still be claimed and year-end tax reconciliation is still essential. The biggest move is towards digital recordkeeping and regular reporting.
That’s where MTD-compatible software comes in, ensuring the transition is straightforward and helping ensure CIS deductions, expenses and tax obligations remain organised throughout the year.
.png)
