Making Tax Digital for CIS Subcontractors: What You Need to Know

Making Tax Digital (MTD) for Income Tax will change how CIS subcontractors report their income and expenses to HMRC.

While the Construction Industry Scheme (CIS) itself is not changing, the way subcontractors maintain records and submit tax information will become fully digital. Understanding how MTD affects CIS subcontractors now will help avoid disruption when the rules come into force.

Does MTD Change CIS?

No — the CIS system remains the same.

Contractors will still:

  • Deduct tax from subcontractor payments (usually 20% or 30%)

  • Submit monthly CIS returns to HMRC

  • Provide subcontractors with deduction statements

What changes is how subcontractors report their income and expenses for Income Tax purposes.

How MTD Affects CIS Subcontractors

If a CIS subcontractor falls within the MTD income thresholds, they must:


1. Keep Digital Records

Subcontractors must maintain digital records of:

  • Total income

  • Total expenses

These records must be kept using MTD-compatible software.


2. Submit Quarterly Updates

Instead of submitting one Self Assessment tax return annually, CIS subcontractors will send:

  • Quarterly summaries of income and expenses to HMRC

  • Using MTD-compatible software

These updates provide HMRC with a snapshot of business performance throughout the year rather than a single year-end submission.


3. Submit a Final Declaration

At the end of the tax year, subcontractors must:

  • Confirm totals

  • Claim allowable expenses

  • Include CIS deductions already paid

  • Submit a final declaration (replacing the traditional Self Assessment return)

This ensures CIS deductions are credited correctly against the total tax due.

CIS Deductions Under MTD

CIS deductions continue to act as advance payments toward a subcontractor’s tax bill.

Under MTD:

  • CIS deductions must still be recorded accurately.

  • They reduce the final tax liability.

  • Overpaid tax may still result in refunds.

Digital software helps track deductions throughout the year instead of waiting until year-end.


Do CIS Deductions Need to Be Reported in MTD Quarterly Updates?

Short answer: No — CIS deductions themselves are not reported in quarterly updates.

Quarterly updates only include summaries of income and expenses. CIS deductions are treated as tax already paid and are applied when the final declaration is submitted, where they reduce the overall Income Tax liability.

HMRC already receives CIS deduction information from contractors through monthly CIS returns, which is why subcontractors do not need to include them in quarterly updates.

Key Takeaway

MTD does not change how CIS deductions work — it changes how CIS subcontractors report their business income:

  • Digital records become mandatory

  • Quarterly updates replace the annual reporting cycle

  • CIS deductions are applied at finalisation, not during quarterly updates