MTD for Income Tax · HMRC 2026/27
MTD for Income Tax 2026: What CIS Subcontractors Actually Need to Know
Making Tax Digital for Income Tax is already live for subcontractors earning over £50,000. The £30,000 threshold arrives in April 2027 — which means most CIS workers are less than a year away from mandatory quarterly reporting. Here's what actually changes, and what to do about it now.
Most CIS subcontractors have heard of Making Tax Digital but haven't looked closely at what it actually means for them. The short version: instead of one Self Assessment return per year in January, you'll need to submit brief quarterly updates to HMRC throughout the year, using compatible software. The annual return doesn't disappear — it becomes a final confirmation of what you've already submitted. It's a change in rhythm more than a change in what you owe.
Who's Affected and When
MTD for Income Tax is being rolled out in stages based on gross trading income — that's your total earnings before CIS deductions. The threshold isn't your taxable profit; it's your gross turnover.
The threshold is based on the tax year two years before the MTD start date — so for April 2027, HMRC will look at your 2025/26 income to determine whether you're in scope. If your earnings are close to the threshold, it's worth knowing now rather than discovering it when the deadline has passed.
MTD doesn't change what tax you owe. It changes when and how often you tell HMRC about it. The quarterly updates are summaries, not payment demands — but missing them still triggers penalties.
CIS Tax Insights · 2026What Actually Changes Under MTD
The biggest misconception is that MTD is just a new way to file the same annual return. It isn't. Here's a side-by-side of how the process actually differs.
| What | Old system | MTD |
|---|---|---|
| How often you file | Once a year (Jan 31) | 4 quarterly updates + 1 final declaration |
| How you keep records | Paper, spreadsheets, receipts box | Digital records in compatible software |
| When you know your tax position | January — when you file | Ongoing — updated quarterly |
| What happens if you miss a deadline | £100 flat penalty | Points-based system — penalties accumulate |
| What you actually owe | No change from MTD | No change from old system |
The quarterly updates are not full tax returns — they're summaries of your income and expenses for that quarter. Think of them as a running total rather than a final calculation. The final declaration at the end of the year is where you confirm everything and add any additional information, like CIS deductions claimed.
The threshold is your gross trading income — your total CIS earnings before any deductions. It's not your taxable profit, not your net income after expenses, and not the amount you actually receive after CIS is withheld. If your CIS statements show total gross payments of £35,000 for 2025/26, you'll be in scope for April 2027 even if your taxable profit is much lower.
How CIS Fits Into MTD
One area that causes confusion is how CIS deductions interact with MTD reporting. The quarterly updates capture your gross income and business expenses — the same figures you'd use on a traditional Self Assessment. The CIS deductions made by your contractors are a separate item that gets included in the final declaration, just as they currently appear on your annual return.
This means the MTD process for a CIS subcontractor looks like this: each quarter, you submit a summary of what you earned (gross, before CIS) and what you spent on the business. At year end, you add the total CIS deductions from your statements — which HMRC uses to calculate your refund or balance. The underlying maths doesn't change; only the frequency of reporting does.
Under MTD, late filing penalties work differently from the old system. Each missed quarterly update earns a penalty point. Once you reach the threshold — currently 4 points for quarterly filers — a £200 penalty is charged for that filing and every subsequent late filing until the points are cleared. Points can be cleared by filing all outstanding updates on time and maintaining compliance for a set period. Missing multiple quarters compounds quickly.
What to Do Before April 2027
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Check Whether You're Already in Scope If your gross CIS income for 2024/25 exceeded £50,000, you should already be using MTD-compatible software. Check your CIS deduction statements from April 2024 to April 2025 and total the gross figures — not the net amount paid to you. If you're over £50,000 and haven't started, speak to your accountant now.
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Choose Compatible Software HMRC maintains a list of MTD-compatible software on GOV.UK. For most CIS sole traders, you need something that can record income and expenses digitally, generate quarterly summaries, and submit directly to HMRC. Options range from simple mobile apps through to full accounting packages — your choice should reflect the complexity of your finances, not the most expensive option available.
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Start Keeping Digital Records Now — Even if You're Not in Scope Yet If you'll be in scope from April 2027, starting to record income and expenses digitally now means you'll have twelve months of practice before it becomes mandatory. Log each CIS payment when it arrives, photograph receipts immediately, and keep your mileage log in the same place as your other records. The habit takes a few weeks to build — it's much easier to build it now than under deadline pressure.
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Talk to Your Accountant About How It Affects Your Workflow MTD changes the rhythm of your accountant relationship as well as your own record-keeping. If your accountant currently prepares your annual return from a batch of records you hand over in January, they'll need to shift to reviewing and submitting quarterly updates. Discuss this with them before the change arrives — not after the first quarterly deadline has passed.
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Collect All Your CIS Statements Consistently Going Forward Under MTD, your quarterly income figures need to be accurate — which means having your CIS deduction statements from every contractor, every month. Start chasing missing statements promptly rather than leaving it to January. A clean, complete set of statements makes quarterly reporting straightforward; a patchy set makes it difficult regardless of what software you're using.
Frequently Asked Questions
Does MTD change how much tax I pay or when I pay it?
No — the payment deadlines stay the same. You still pay any tax owed by 31 January, with a Payment on Account instalment due 31 July if applicable. MTD changes how often you report your income and expenses to HMRC, not when you pay. The quarterly updates are information submissions, not payment demands.
Do I need to pay for accounting software under MTD?
HMRC's list of compatible software includes some free options, particularly for people with simple finances. Most CIS sole traders with straightforward income and expenses should be able to find a low-cost or free option that meets the requirements. The GOV.UK software finder allows you to filter by price and features to find something that fits your situation.
What if I earn close to the £30,000 threshold — how do I know if I'll be in scope?
For the April 2027 start date, HMRC will use your 2025/26 gross trading income to determine whether you're in scope. Your gross income is the total shown on your CIS deduction statements — not your taxable profit and not the net amount paid to you. If you're unsure whether your 2025/26 income will exceed £30,000, check your CIS statements from April 2025 to April 2026 when they're available. Your accountant can confirm the figure from your Self Assessment return.
Can I use a spreadsheet instead of dedicated software?
HMRC allowed bridging software for VAT MTD — tools that connect a spreadsheet to HMRC's system. Whether this will be permitted for MTD for Income Tax is still being confirmed. The safest approach is to use dedicated MTD-compatible software rather than relying on a bridging solution that may or may not be available. Check HMRC's software list on GOV.UK for the most current guidance on what's approved.
People Also Ask
When does Making Tax Digital apply to CIS subcontractors?
MTD for Income Tax is mandatory from April 2026 for self-employed people with gross income over £50,000. From April 2027, the threshold drops to £30,000. Gross income means your total CIS earnings before any deductions — not your taxable profit after expenses.
What does Making Tax Digital mean for CIS workers in practice?
Instead of one annual Self Assessment return in January, you submit four quarterly income and expense summaries to HMRC throughout the year using compatible software, plus a final declaration by 31 January. The amount of tax you owe does not change — only how often you report it to HMRC.
Does MTD for Income Tax change when I pay my tax?
No — the payment deadlines stay exactly the same. You still pay any tax owed by 31 January, with a Payment on Account instalment due 31 July if applicable. MTD changes how often you report your income and expenses to HMRC, not when you pay. The quarterly updates are information submissions, not payment demands.
Do I need to pay for software to comply with MTD for Income Tax?
HMRC maintains a list of approved MTD-compatible software on GOV.UK, including some free options suitable for sole traders with straightforward finances. The GOV.UK software finder allows you to filter by price and business type to find something appropriate for your situation.
A Change in Rhythm, Not in What You Owe
MTD for Income Tax is a significant administrative change, but it's not a new tax. The amount you owe is calculated on exactly the same basis as before — income minus allowable expenses, minus CIS deductions already withheld. What changes is how often you tell HMRC about it.
If you're already above £50,000, the change is happening now. If you're between £30,000 and £50,000, April 2027 is your deadline. Either way, the preparation is the same: choose compatible software, start keeping digital records consistently, and make sure your CIS statements are complete. The subcontractors who find MTD straightforward will be the ones who built the habit before the deadline arrived.
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This article is for informational purposes only and does not constitute formal accounting, legal, or tax advice. MTD for Income Tax thresholds, deadlines, and software requirements are subject to change — always check HMRC's current guidance on GOV.UK and consult a qualified accountant for advice specific to your situation. Aligned to 2026/27 HMRC guidance.