Making Tax Digital for CIS Subcontractors: Quarterly Updates, Deductions and Refunds

If you work in construction as a self-employed subcontractor under CIS, Making Tax Digital for Income Tax has changed how sole traders report to HMRC. Since 6 April 2026, anyone self-employed with qualifying income over £50,000 must keep digital records and send quarterly updates, and CIS subcontractors are firmly in scope.

The good news first: the Construction Industry Scheme itself is not changing. Your contractor still deducts 20% (or 30%), you still get payment and deduction statements, and you still claim back overpaid tax once a year. What changes is how you keep records and how often you report. This guide covers the lot, including the gross-income trap that catches a lot of subcontractors out.

Does Making Tax Digital apply to CIS subcontractors?

Yes, if you're a self-employed sole trader and your qualifying income is over the threshold. MTD for Income Tax is being phased in:

• From 6 April 2026, qualifying income over £50,000 (based on your 2024-25 tax return)
• From 6 April 2027, qualifying income over £30,000
• From 6 April 2028, qualifying income over £20,000

Qualifying income means your gross self-employment turnover plus any property income, added together, before any expenses are deducted. If you work through your own limited company, MTD for Income Tax doesn't apply to the company's trading income, it covers sole traders and landlords only.

Nothing about CIS itself changes. Contractors still verify you, still deduct tax at source, and still file their monthly CIS returns. MTD changes your record-keeping and reporting, not the deduction system. If you're a tradesperson working outside CIS, our guide for plumbers, electricians and builders covers your situation.

The gross-income trap: check your invoices, not your bank account

This is the single biggest mistake CIS subcontractors make when working out whether MTD applies to them.

Qualifying income is your gross invoiced turnover before the CIS deduction. The 20% your contractor withholds is an advance payment of your tax, not a reduction in your income. HMRC's guidance defines qualifying income as your income before you deduct expenses, also called your turnover.

Here's how that plays out for a subcontractor on the standard 20% rate:

Item	2024-25 figures
Gross invoiced labour	£56,250
CIS deducted at 20%	£11,250
Received into the bank	£45,000
Qualifying income for MTD	£56,250

The bank account says comfortably under the threshold. HMRC says £56,250, and in scope from April 2026. A rough rule of thumb at the 20% rate: if more than £40,000 of net labour payments reached your bank in 2024-25, your gross was over £50,000. The effect is even stronger at the 30% rate, an unregistered subcontractor banking £44,800 has actually invoiced £64,000.

Two more things push your true figure higher. CIS deductions are calculated on the labour element of each payment only, so materials you recharge to the contractor arrive with nothing deducted, but they still count towards your turnover. And if you don't have your invoices to hand, your contractor's payment and deduction statements show the gross figures.

How CIS deductions work with quarterly updates

Each quarterly update sends HMRC summary totals of your income and expenses for the year so far. For a CIS subcontractor, three rules matter:

• Income goes in gross. Report the full invoiced amount, before the contractor's deduction.
• CIS deductions are not entered quarterly. There's no box for them in a quarterly update, and you must never list them as an expense.
• Deductions are reconciled at year end. When you complete your tax return after 5 April, you enter the total CIS deductions suffered, exactly like the CIS box on the old Self Assessment form, and HMRC offsets them against your final bill.

In other words, the quarterly updates tell HMRC how your trade is going. The CIS tax you've already paid only enters the picture once, at the end of the year. If you want to see what a quarterly submission actually involves, read how to submit your first MTD quarterly update, it comes down to two figures.

What happens to CIS refunds under MTD?

Many subcontractors overpay through CIS, because the 20% comes off gross labour with no allowance for expenses or the tax-free personal allowance. That refund is still claimed once a year, through your year-end tax return. The deadline is 31 January following the end of the tax year, so 31 January 2028 for 2026-27, but you can file as soon as your figures are final after 5 April, and subcontractors expecting a refund tend to file early.

Quarterly updates do not release refunds early. Submitting four updates showing heavy deductions won't trigger a mid-year repayment. What clean digital records do change is the speed and reliability of the claim: when your submitted figures match your invoices and your retained contractor statements, there's less for HMRC to query and less back-and-forth before the money lands.

Want a rough idea of where you'll stand? Our free tax calculator estimates your bill from your income and expenses, so you can compare it against the deductions you've suffered.

The 2026-27 quarterly deadlines

Updates follow the tax year by default, and each one is cumulative, meaning it covers everything from 6 April up to the end of that quarter:

Quarter	Period covered	Deadline
Quarter 1	6 April to 5 July 2026	7 August 2026
Quarter 2	6 April to 5 October 2026	7 November 2026
Quarter 3	6 April 2026 to 5 January 2027	7 February 2027
Quarter 4	6 April 2026 to 5 April 2027	7 May 2027

The cumulative model is genuinely forgiving. Because every update resends your year-to-date totals, a mistake in one quarter is simply corrected in the next. Missed a job in your Quarter 1 figures? Include the correct cumulative totals in Quarter 2 and the earlier figures are superseded, there's no separate amendment process. We've explained the mechanics in cumulative quarterly updates explained, and all the dates are in our 2026-27 deadlines guide.

If tax-year dates sit awkwardly against month-end invoicing, you can elect calendar update periods instead, ending 30 June, 30 September, 31 December and 31 March. You choose this before your first update, and the submission deadlines stay exactly the same.

What digital records do you need to keep?

You need a digital record of your business transactions, and for a CIS subcontractor that means:

• Gross invoice amounts, the full value of each invoice before any deduction
• CIS deductions suffered, logged per payment so they reconcile against your contractor statements at year end
• Contractor payment and deduction statements, contractors must give you one within 14 days of the end of each tax month they pay you in, and they're your evidence at refund time, so keep every one
• The materials vs labour split, deductions are only calculated on labour, so invoices that show the split are what make your statements reconcile
• Allowable expenses, tools, PPE and workwear, van costs or mileage, fuel, phone and data, insurance, plant hire

A spreadsheet counts as a digital record. You don't need accounting software, and you don't need to log anything in real time on site: a spreadsheet plus HMRC-recognised bridging software fully satisfies the rules. If you want a ready-made layout, our free MTD spreadsheet template has income and expense columns and auto-calculated totals.

Penalties: a soft start, but not a free pass

Late quarterly updates normally earn penalty points, with a £200 fine once you reach four points. But following the Autumn Budget 2025, HMRC has confirmed it will not apply penalty points for late quarterly updates during the 2026-27 tax year. The first year is a genuine chance to build the habit.

The easement covers quarterly updates only. Your year-end tax return deadline and the 31 January payment deadline still carry the usual penalties and interest. Treat 2026-27 as breathing space, not a year off. The full picture is in MTD penalties explained.

Gross payment status holders are still in scope

If you hold gross payment status, contractors pay you without deductions, but MTD applies to you in exactly the same way. The threshold test, the quarterly updates and the year-end tax return are identical. The difference is at the end: with nothing deducted at source, you'll owe your full bill by 31 January, plus payments on account where they apply. Quarterly updates actually help here, because you see your year-to-date position four times a year instead of getting a surprise in January.

What if you have PAYE work as well?

Plenty of construction workers mix employed and self-employed work across the year. Two rules:

• PAYE income does not count towards the qualifying-income threshold, and it doesn't go in your quarterly updates. Only self-employment turnover and property income count.
• Multiple self-employments are added together. £35,000 from CIS work plus £20,000 from a separate trade puts you over £50,000.

Your employment income still gets reported on your year-end tax return as normal, it just doesn't pull you into MTD by itself.

How to comply, step by step

1. Check your 2024-25 gross income. Add up gross invoiced turnover (before CIS deductions) across all your trades, plus any rental income. Over £50,000 means MTD from April 2026.
2. Sign up for MTD on GOV.UK. You'll need your Government Gateway login and National Insurance number, and sign-up isn't automatic. Our step-by-step GOV.UK sign-up guide walks through every screen.
3. Keep your records in a spreadsheet. Log each invoice gross, file every deduction statement, track your expenses as you go.
4. Submit your quarterly updates with free bridging software. A subcontractor's update is just two figures, gross turnover and total expenses. flonancial is HMRC-recognised, genuinely free, and reads them straight from your spreadsheet. Here's how a first quarterly update works.
5. File your year-end tax return. This is where your CIS deductions are entered and your refund is claimed. flonancial handles quarterly updates only for now (year-end support is planned), so use an accountant or another MTD-compatible product for this step.

The alternative is handing the whole thing to an accountant, who can do your quarterly updates and year-end together. That works, but four extra filings a year usually means higher fees. A common-sense split for many subcontractors: do the quarterly updates yourself for free with flonancial, and keep the accountant for the year-end return where the CIS refund is actually decided.

Common questions from CIS subcontractors

Do I now pay tax four times a year?

No. Quarterly updates are reporting only. Your CIS deductions continue as normal through the year, and any balance (or refund) is settled after your year-end tax return, with payment due by 31 January.

Does MTD change the 20% and 30% deduction rates?

No. Registered subcontractors still suffer 20%, unregistered 30%, and gross payment status holders 0%. MTD sits alongside CIS, it doesn't replace or alter it.

Will my refund arrive faster under MTD?

The claim still happens through your tax return after the tax year ends, so no earlier than now. But with digital records and your gross income already reported, a tidy, statement-backed claim is quicker to prepare and less likely to be held up by HMRC queries.

I'm a contractor as well as a subcontractor. What changes?

Your monthly CIS returns as a contractor carry on unchanged, they're a separate system from MTD. Your own sole-trader income follows the rules in this guide. See our guide for contractors for the other side of the fence.

I'm under £50,000. Can I ignore this?

For now, but check the maths on gross income first: invoices, not bank statements. If you're over £30,000 you join from April 2027, and over £20,000 from April 2028. You can also sign up voluntarily early if you'd rather get the habit going.

Getting set up

If you already invoice from a spreadsheet and keep your deduction statements in a folder, you're most of the way there. Create a free flonancial account, connect to HMRC once, and file your quarterly updates from your existing spreadsheet, reporting your gross turnover before CIS, well before the first deadline on 7 August 2026. Your CIS deductions and any refund are settled later on your year-end tax return, the one part flonancial doesn't file yet.