Making Tax Digital software for CIS subcontractors

The dates that decide whether this applies to you

• 6 April 2026 — qualifying income over £50,000. Live now.
• 6 April 2027 — threshold falls to £30,000.
• 6 April 2028 — threshold falls to £20,000.

The £30,000 step is the one that catches most of the trade. It pulls in a very large number of subcontractors who were comfortably outside the first tranche, and it is eighteen months away, not five years.

Qualifying income is turnover, not profit

This is where subcontractors get caught out. Qualifying income is gross trading and property income before expenses. Invoice £60,000, spend £25,000 on materials and the van, take home £35,000 — you are measured on the £60,000. You are in scope now, not in 2027.

Add up every source. Trading income and property income are combined for the threshold test, so a subcontractor with a single let flat can cross a threshold their trade alone would not.

What actually changes

CIS does not change. Contractors still deduct 20% from your labour if you are registered and verified, 30% if you are not, and 0% with gross payment status. Materials are still excluded. You still reclaim the deductions.

Three things change:

• Records must be digital. A paper cash book is out. A spreadsheet on its own is out too, unless it is paired with bridging software that makes the submission.
• You file four quarterly updates — due 7 August, 7 November, 7 February and 7 May — instead of one annual return. The final declaration is still 31 January.
• Reconstruction stops working. The January shoebox approach cannot survive a deadline every three months. The records have to be captured as the work happens.

The penalty position right now

HMRC has confirmed a transitional easement: no late-submission penalty points for quarterly updates during 2026/27. That is a grace period for getting your system right, not an exemption from filing. From 2027/28 the points-based regime applies to quarterly updates in full, and late-payment penalties and interest apply throughout regardless.

Why CIS makes this harder than it is for other trades

A subcontractor’s income has a deduction taken out of it before it lands. Your quarterly update has to reflect the gross figure and the tax already handed to HMRC on your behalf, and those have to agree with the deduction statements each contractor issues you within 14 days of the tax month end.

If the invoice, the deduction and the statement are three separate records in three separate places, reconciling them four times a year is a real job. If the deduction is applied per line at the moment you raise the invoice — with the labour and materials split already correct — there is nothing to reconcile. Our CIS deduction calculator shows the split the way it has to be applied.

What to do now

1. Add up your gross trading and property income for the last full tax year.
2. Check it against the £50,000 line for 2026/27 and the £30,000 line for 2027/28.
3. If you are in scope, or will be, stop keeping records on paper. Capture income, expenses and CIS deductions digitally from the point of invoice.
4. Collect every CIS deduction statement as it arrives, and check it against your own figure while the job is still fresh.
5. Talk to your accountant about who submits the quarterly updates — you or them.

The wider tax picture is in the VAT, CIS and MTD guide, and if you invoice other construction businesses, the domestic reverse charge wording is the other thing that has to be right on the invoice itself.

Guidance, not tax advice. Thresholds, dates and the 2026/27 penalty easement verified against GOV.UK in September 2026. MTD rules have been deferred before — check GOV.UK before acting on a date, and check your own position with your accountant.