MTD for Contractors: CIS and Quarterly Updates

If you work in construction under the Construction Industry Scheme (CIS), MTD adds a layer of complexity. Your income has CIS deductions taken at source, and your quarterly updates need to reflect this correctly. Here is how MTD and CIS work together.

How CIS Affects Your MTD Reporting

Under CIS, contractors deduct 20% (or 30% if you are not registered) from your payments before paying you. These deductions are advance payments of your Income Tax — they count as tax already paid when HMRC calculates your final bill.

For MTD quarterly updates, you report:

• Gross income: The full amount before CIS deductions
• CIS deductions suffered: The amount withheld by contractors
• Net payment received: What actually hit your bank account

Your software needs to handle this correctly. If you only record the net amount received, your income will be understated and you will not get credit for the CIS deductions already paid.

Recording CIS Transactions

When you receive a CIS payment:

1. Record the gross amount as income
2. Record the CIS deduction as tax already paid
3. The net amount should match what appears in your bank feed

Your CIS payment and deduction statement from the contractor shows these figures. Keep every statement — they are your evidence for claiming credit for deductions suffered.

Accounted handles CIS transactions automatically, recording the gross income, deduction, and net payment from a single entry.

Materials and CIS Deductions

CIS deductions apply to the labour portion of your payment only. Materials you supply are excluded from the deduction calculation.

When recording CIS payments, you need to separate:

• The labour element (subject to CIS deduction)
• The materials element (not subject to CIS deduction)

Your contractor should identify these amounts on your payment and deduction statement.

CIS in Your Final Declaration

At year-end, your final declaration includes a claim for all CIS deductions suffered during the year. These are offset against your Income Tax liability. If your CIS deductions exceed your tax bill, you receive a refund.

This makes accurate record-keeping throughout the year essential. If you have not recorded all your CIS deductions, you could miss out on tax relief you are entitled to.

Practical Tips for Construction Workers

• Keep every CIS payment and deduction statement — these are your proof of tax already paid
• Record gross amounts, not net — this is the most common error
• Track materials separately — to ensure deductions are calculated correctly
• Verify your CIS registration status — being unregistered means 30% deductions instead of 20%
• Use software that understands CIS — not all MTD software handles construction industry specifics

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