Making Tax Digital and CIS. What subcontractors have to keep, and what counts as income.

You’ve worked for the same two main contractors for three years. Every month a payment and deduction statement turns up. Every January your accountant asks for them, you find most of them, and the refund lands in March.

Then a letter about Making Tax Digital arrives and you do the sum in your head. Money in the bank last year was about forty-eight grand. Under fifty. Not my problem.

Except the fifty thousand isn’t measured on what hit your bank. It’s measured on what you invoiced. And for a CIS subbie, those are two very different numbers.

MTD for Income Tax, the thirty-second version

Making Tax Digital for Income Tax is HMRC’s new way of running Self Assessment for sole traders and landlords. Three things change. You keep your income and expense records digitally, in software. You send HMRC a short summary every quarter. And at the end of the year you submit your tax return through that software instead of the old online form. You still pay once, by 31 January.

It’s being phased in by income, based on a return you’ve already filed:

Our full MTD guide for sole traders covers the deadlines, the penalties and the spreadsheet question. This post is about the bit that guide couldn’t go into: what MTD looks like when a chunk of your income never reaches your account because a contractor sent it to HMRC first.

Qualifying income for CIS subbies: gross, not what landed in the bank

This is the one that matters. GOV.UK defines qualifying income as “your total income from self-employment and property” and says it’s “the amount before expenses (also known as turnover)”. Turnover is what you charged. Not what you kept, and not what arrived after the deduction.

CIS deductions aren’t an expense. They’re your own income tax, paid early. HMRC’s CIS guidance tells sole traders to “report your total pay before deductions as income, and report the total deductions contractors took as CIS deductions”. Same logic under MTD: the income is the gross figure, and the deductions are a separate thing that gets credited against your bill.

So here’s Dave, a plasterer:

• Invoiced in 2024–25 – £58,000, of which £52,000 was labour and £6,000 materials.
• CIS deducted by contractors – 20% of the £52,000 labour, so £10,400.
• Actually paid into the bank – £47,600.

Dave looks at £47,600 and thinks he’s under the threshold. HMRC looks at £58,000 and puts him in MTD from April 2026. If your invoices before deductions were over £50,000 on your 2024–25 return, you’re in now, whatever the bank statement says.

Invoiced, before CIS came off£58,000

Paid into the bank£47,600

£0£50,000 threshold

The £10,400 gap is CIS: 20% of his £52,000 labour. It comes back when his tax is worked out. It doesn’t lower the number MTD looks at.

What a CIS subbie actually has to keep

MTD asks for digital records, and GOV.UK is specific about what each record needs: the amount, the date the income was received or the expense incurred, and the category, using the same categories as Self Assessment. For a subbie that means three sets of records, and one of them is easy to get wrong.

• Your sales invoices, at the gross amount – every invoice to every contractor, recorded at the full value before deduction. If you only know the net figure that arrived, GOV.UK says to find out the full income before expenses, record that, and record the expenses separately. The same principle applies to the deduction: record the gross, and keep the deduction as its own figure.
• Your payment and deduction statements – the contractor must give you one within 14 days of the end of each tax month, showing what they paid you and what they deducted. HMRC can ask for them as evidence of your deductions, so keep every one. If one’s missing, ask the contractor for a replacement. If the contractor’s gone bust and you can’t get them, write to HMRC with your details, theirs, and the tax months involved.
• Your expenses, with the paperwork behind them – materials, plant hire, fuel, tools, the van. Each one a digital record with amount, date and category. GOV.UK also says to keep the original records or supporting documents you used, such as bank statements and invoices, so the receipt still matters.

And keep it all for at least five years after the 31 January deadline for that tax year. A photo in the camera roll isn’t a digital record. A photo that’s been logged with a date, an amount and a category against the right job is.

What goes in the quarterly update

Four times a year you send HMRC a running total of your income and expenses by category, from 6 April up to the end of the period. The deadlines are 7 August, 7 November, 7 February and 7 May, and each update is cumulative, so the fourth one covers the whole year.

Two things to know as a subbie. First, the update is totals only. GOV.UK says “HMRC will not receive details of individual receipts or invoices in your quarterly updates”, so nobody at HMRC is reading your statements each quarter. Second, the income figure in the update is your gross turnover, for the same reason as above. Your CIS deductions don’t go in as an expense. They’re dealt with at the end of the year.

And for the 2026–27 tax year, there are no penalties for missing a quarterly update deadline. You still have to send them before you can submit your return, but a late one this year doesn’t cost you.

Checked against GOV.UK on 21 October 2026.

How your CIS deductions come back under MTD

The mechanics haven’t changed. At the end of the year you submit your tax return through your MTD software, HMRC works out the tax on your profit, and takes off the CIS deductions your contractors have already paid in. If you’ve overpaid, you get a refund. If you still owe, you pay by 31 January.

One useful change: GOV.UK says HMRC will add CIS subcontractor deductions to your return if it holds that information, and you check them before you submit. That’s where those monthly statements earn their keep. If HMRC’s figure doesn’t match your statements, the statements are your evidence.

Limited company subbies work differently. Your deductions go through PAYE, on the Employer Payment Summary, and are set against what the company owes, with any leftover reclaimed after the year ends. Don’t try to claim them on the Corporation Tax return; GOV.UK warns you may get a penalty.

Checked against GOV.UK on 21 October 2026.

The three things that trip subbies up

• Counting net not gross. The £50,000, £30,000 and £20,000 thresholds are on invoiced turnover. Add the deductions back before you decide whether you’re in.
• Mixing up the two deductions. CIS comes off your labour. The domestic reverse charge means VAT isn’t added at all if you and the contractor are both VAT-registered. They’re separate rules and they both show up on the same invoice.
• Losing the statements. The deduction only comes back if you can show it was made. A year’s worth of statements in a glovebox is a year’s worth of refund at risk.

Making Tax Digital and CIS for subcontractors: quick FAQ

You’re measured on what you earned, not what you were left with. Keep the gross, keep the statements, and the refund takes care of itself.

Where these figures come from

Every number in this guide is linked to its source below, with the date we checked it. Rules and prices change — if you are reading this a long way from the date at the top, check the originals.

• Thresholds and start dates: over £50,000 for 2024–25 from 6 April 2026, over £30,000 for 2025–26 from 6 April 2027, over £20,000 for 2026–27 from 6 April 2028; who is in scope — GOV.UK, Find out if and when you need to use Making Tax Digital for Income Tax (last updated 26 March 2026): gov.uk/guidance/find-out-if-and-when-you-need-to-use-making-tax-digital-for-income-tax
• Qualifying income is total income from self-employment and property, before expenses, assessed from the previous year’s Self Assessment return — GOV.UK, Work out your qualifying income for Making Tax Digital for Income Tax: gov.uk/guidance/work-out-your-qualifying-income-for-making-tax-digital-for-income-tax
• Report total pay before deductions as income and the deductions as CIS deductions; HMRC works out tax and takes off deductions; pay by 31 January; limited companies claim via the Employer Payment Summary; keep the monthly statements — GOV.UK, What you must do as a CIS subcontractor, Pay tax and claim back deductions: gov.uk/what-you-must-do-as-a-cis-subcontractor/pay-tax-and-claim-back-deductions
• Deduction rates of 20% and 30%; payment and deduction statements within 14 days of the end of each tax month; what to do if statements are missing — GOV.UK, What you must do as a CIS subcontractor, Getting paid: gov.uk/what-you-must-do-as-a-cis-subcontractor/get-paid
• Digital records must show amount, date and category; record the full income before expenses if you only know the net; keep original records such as bank statements and invoices; keep records for at least 5 years after the 31 January deadline — GOV.UK, Use Making Tax Digital for Income Tax, Create digital records: gov.uk/guidance/use-making-tax-digital-for-income-tax/create-digital-records
• Quarterly periods and deadlines of 7 August, 7 November, 7 February and 7 May; updates cumulative from 6 April; totals by category and no individual receipts or invoices — GOV.UK, Send quarterly updates: gov.uk/guidance/use-making-tax-digital-for-income-tax/send-quarterly-updates
• HMRC adds CIS deductions it holds to your return for you to check; submit by 31 January — GOV.UK, Submit your tax return: gov.uk/guidance/use-making-tax-digital-for-income-tax/submit-your-tax-return
• No penalties for missing a quarterly update deadline in the 2026–27 tax year; penalty points thereafter with £200 at four points — GOV.UK, Penalties for Making Tax Digital for Income Tax: gov.uk/guidance/penalties-for-making-tax-digital-for-income-tax

All sources checked 21 October 2026.

Related guides

• MTD is here: what sole traders must actually do now
• MTD digital records: do I have to upload receipts?