CIS and MTD: How Making Tax Digital Affects Construction
What Is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system. It requires businesses to keep digital records and submit tax information to HMRC using compatible software. MTD is being rolled out in phases across different taxes.
For construction businesses operating under CIS, MTD adds new requirements on top of existing CIS obligations.
MTD for VAT — Already Live
MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. If your construction business is VAT-registered, you must:
- Keep digital records of all VAT transactions
- Submit VAT returns using MTD-compatible software
- Maintain digital links between records and returns (no manual re-keying of data)
For CIS businesses, this means your VAT return — including any reverse charge entries — must be submitted through compatible software.
MTD for Income Tax Self Assessment
MTD for Income Tax Self Assessment (MTD for ITSA) is being phased in:
- April 2026: Mandatory for self-employed individuals and landlords with income over £50,000
- April 2027: Extended to those with income over £30,000
- Future dates: Further extensions to lower income thresholds
Under MTD for ITSA, you must:
- Keep digital records of all income and expenses
- Submit quarterly updates to HMRC (instead of a single annual return)
- Submit an End of Period Statement (EOPS) after the tax year
- Submit a Final Declaration (replacing the Self Assessment tax return)
How This Affects CIS Subcontractors
If you are a self-employed CIS subcontractor with income above the threshold, you will need to:
- Use MTD-compatible software to record your income and expenses
- Submit quarterly updates — four times a year, you send HMRC a summary of your income and expenses for that quarter
- Report CIS deductions through the MTD system
- Claim your CIS refund through the Final Declaration
The quarterly updates mean you cannot leave everything until January. Your records must be up to date throughout the year.
Quarterly Update Deadlines
| Quarter | Period | Deadline | |---------|--------|----------| | Q1 | 6 April – 5 July | 5 August | | Q2 | 6 July – 5 October | 5 November | | Q3 | 6 October – 5 January | 5 February | | Q4 | 6 January – 5 April | 5 May |
The End of Period Statement is due by 31 January following the tax year, and the Final Declaration by 31 January as well.
What Digital Records Must You Keep?
Under MTD, your digital records must include:
- Business income — all amounts received, with dates
- Business expenses — all amounts paid, with dates and categories
- CIS deductions — amounts deducted from your payments
- VAT records — if VAT-registered
The records must be kept in digital form from the point of entry. You cannot keep paper records and transfer them to software at the end of the quarter — they must be digital from the start.
The Impact on CIS Record Keeping
MTD raises the bar for CIS record keeping. Under the current system, many subcontractors keep paper records and compile everything for their annual Self Assessment. Under MTD, this approach will no longer be acceptable.
You will need:
- A digital record of every CIS payment received
- A digital record of every CIS deduction suffered
- Digital copies of payment and deduction statements (or the data from them recorded digitally)
- All expense receipts captured digitally
Choosing MTD-Compatible Software
Your software must be able to:
- Record income and expenses digitally
- Submit quarterly updates to HMRC via their MTD API
- Handle CIS deductions correctly
- Submit the End of Period Statement and Final Declaration
Not all accounting software supports CIS alongside MTD. When choosing software, check that it handles both.
Preparing for MTD
1. Start Using Digital Records Now
Even if MTD for ITSA does not apply to you yet, switching to digital records now means you will be ready when it does. It also makes your current bookkeeping easier and more accurate.
2. Choose Your Software Early
Do not wait until the deadline to find compatible software. Set it up, learn how it works, and start recording transactions well in advance.
3. Get Your CIS Records in Order
Ensure all your CIS deductions are recorded digitally with supporting evidence. If you have paper statements from contractors, scan and store them.
4. Understand the Quarterly Cycle
Get used to reviewing your records quarterly. This is a shift from the annual mindset many sole traders operate with, but it leads to better financial awareness and fewer surprises at year end.
How Accounted Prepares You for MTD
Accounted is fully MTD-compatible and designed for UK sole traders, including construction subcontractors:
- Digital record keeping — all income, expenses, and CIS deductions recorded digitally from day one
- Quarterly submissions — submit updates to HMRC directly from Accounted
- CIS integration — deductions tracked and reported correctly through the MTD system
- Receipt capture — WhatsApp receipt upload means every expense is digitally recorded
- Penny's reminders — quarterly deadlines tracked and reminded automatically
See our pricing page for MTD-ready plans.
MTD is coming — be ready. Sign up for Accounted and get your construction business digitally compliant before the deadlines hit.
Tax & Compliance Specialists
Our tax specialists have decades of combined experience in UK sole trader and small business taxation, MTD compliance, and HMRC submissions. All content is reviewed against current HMRC guidance before publication and updated quarterly to reflect legislative changes.
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