Making Tax Digital: what a CIS subcontractor has to send HMRC every quarter

For years the deal was simple. You kept the payment and deduction statements in a drawer, your books in a spreadsheet or a shoebox, and once a year somebody turned it all into one Self Assessment return by 31 January.

Making Tax Digital for Income Tax replaces that single return with five submissions: four quarterly updates and a final declaration. The first quarterly deadline for the £50,000 tranche was 7 August 2026, and the test that decides whether you are in it is not your profit. It is your turnover, which is the number a CIS subcontractor has the most of and keeps the least of.

This page is the mechanism: which step of the staircase catches you and when, what a quarterly update actually contains, what the final declaration does with the tax already taken off your invoices, and what your records have to look like in between.

Which step catches you, and the day it starts

Making Tax Digital for Income Tax does not switch on for the whole country on one day. It descends a staircase of qualifying income thresholds, and each step reads a tax return you have already filed.

Two things about the staircase are easy to read past.

The word is "over", not "at least". HMRC's eligibility guidance mandates qualifying income over each figure, so a sole trader whose 2024-25 turnover came in at exactly £50,000 is not caught by the first step. £50,001 is.

HMRC does the checking, from a return you filed a year or more ago. The guidance says HMRC "will review your Self Assessment tax return and check your qualifying income each tax year". Your 2027-28 obligation was decided by a return describing work you did two years earlier. Nothing you invoice in the current year moves your start date, in either direction.

The MTD countdown does one job with one number. You type in your qualifying income, and it returns the step that income lands on, the calendar day that step commences, and how many days are left until it does. It is free, it does not ask you to sign in, and the thresholds it counts against are read from a dated rule register, so when the £20,000 tranche moves the countdown moves with it.

Qualifying income is turnover, and that is why CIS subbies get caught early

Here is the sentence that decides most of this, taken from HMRC's own page on working it out:

"Qualifying income is your total income from self-employment and property. This is the amount before expenses (also known as turnover), based on the tax return you submitted in the previous tax year."

Before expenses. Not profit, not drawings, not what landed in the bank. For a subcontractor that gap is enormous, because the CIS deduction comes off the money you receive and does nothing at all to your turnover. A 20% deduction is a payment on account of your income tax. It is not a discount on your sales.

Two more things fold into that total. Property income counts alongside self-employment, so a subbie with one let flat adds the rent to the invoices. And if you record on the cash basis and you are VAT registered, you can choose to record income including or excluding VAT, with the warning that if you include it, the VAT counts toward qualifying income too.

Three subbies, all sole traders, all invoicing under the Construction Industry Scheme:

The groundworker's profit is £31,500 and his bank credits total £43,200, and the number HMRC tests is £54,000. He was mandated from 6 April 2026 and will have felt like a £31,500 business the whole time.

The kitchen fitter is caught for a different reason. His £14,000 of materials is somebody else's money passing through his account, and every pound of it counts toward the test. The CIS deduction ignores those materials, which is the correct treatment and the source of the confusion: the scheme that takes your money looks at labour only, and the scheme that decides your filing rhythm looks at everything you invoiced.

The carpenter sits under the first step. If his 2025-26 year looks like this one, the £30,000 step brings him in from 6 April 2027.

What a quarterly update actually is

Less than people expect. A quarterly update is the totals of your income and expenses for each category, sent from compatible software. It carries no receipts, no invoices and no tax calculation, and HMRC is explicit that you "do not need to make any accounting or tax adjustments before sending a quarterly update".

The part that surprises people is that the updates are cumulative rather than three separate quarters. HMRC's guidance puts it plainly: "Each time you send a quarterly update it will cover from the start of the tax year to the end of the update period, not just the previous three months." A figure you got wrong in July is therefore corrected by sending the right running total in November. There is no amendment process to learn, because the next update is the amendment.

Standard update periods, and the deadline on each:

Software can also be set to calendar update periods, running to 30 June, 30 September, 31 December and 31 March. The four deadlines stay at 7 August, 7 November, 7 February and 7 May, so a business that closes its month on the 30th can carry on closing it on the 30th and still hit the same dates.

Here is a year of updates for the kitchen fitter, on standard periods, in his first mandated year:

Two numbers he already has, four times a year.

Notice what is missing from every row of it. The £9,600 of CIS deducted from his invoices appears nowhere. Deductions suffered are not income and they are not an expense: they are your own income tax, paid early, by somebody else, on your behalf. They belong in your records as tax already paid, and they get their moment at the end of the year rather than in any quarterly update. A subbie who nets the deduction off his turnover in the quarterly figures understates his income by exactly the amount he has already paid, and then meets it again as a shortfall in January.

The final declaration is where the year is settled

The fifth submission is the one that replaces the Self Assessment return. HMRC's guidance keeps the familiar date: "You must submit your tax return by 31 January following the end of the relevant tax year." This is where the whole picture goes in, including allowances, reliefs, adjustments and any other taxable source of income you have.

HMRC pre-populates part of it, and the pre-populated list includes "Construction Industry Scheme (CIS) subcontractor deductions", alongside PAYE income, student loan plan type, pensions, taxable state benefits, Capital Gains Tax residential property disposals and Marriage Allowance claims. Check that figure against your payment and deduction statements rather than accepting it. HMRC's copy is assembled from what your contractors reported on their monthly CIS300 returns, and the statements in your drawer are the evidence if the two disagree. The routes for getting that money back, and the different route a limited company is obliged to use, are in claiming your CIS deductions back.

Run the kitchen fitter's year all the way through, for 2026-27:

He sent HMRC £9,600 across the year in twenty pence chunks off every pound of labour, and he owed £7,365.80. The £2,234.20 comes back after the final declaration goes in. None of the four quarterly updates would have told him that number, because a quarterly update carries no calculation, and that is the single most useful thing to understand about the new rhythm: the quarters are bookkeeping, the January submission is the tax.

Scotland runs its own income tax bands, so the income tax half of that sum lands differently north of the border while the Class 4 NIC half does not. Payments on account are unchanged by any of this and stay due on 31 January and 31 July, and a subbie sitting in a repayment position because of deductions suffered usually has none to make.

Digital records, and what counts as compatible software

The requirement comes from the Income Tax (Digital Requirements) Regulations 2021, SI 2021/1076, whose Part 2 is headed "Digital records" and whose Part 3 is headed "Quarterly updates". What a digital record has to carry is short. HMRC's guidance lists three fields: the amount, the date when the income was received or the expense incurred, and the category. Keep them "for at least 5 years after the 31 January submission deadline for a tax year".

Two allowances make this lighter than it sounds for a one van business.

Under £90,000 of turnover, simplified categorisation applies. A sole trader below that figure records only whether a transaction is income or an expense, without splitting the expenses into categories at all. Above it, the categories come back.

Spreadsheets survive, through bridging software. HMRC's software page says it directly: "If you use spreadsheets to record income and expenses, bridging software can connect to them and make your submissions to HMRC." What the software itself has to be able to do is create, store and correct digital records, send your quarterly updates, and submit the tax return by 31 January. Free products are listed for simple tax affairs, with limits such as a capped number of transactions.

Signing up, and what HMRC asks for

Signing up is a short form and you use the same Government Gateway user ID and password you got when you registered for Self Assessment. Two conditions sit in front of it: you have to be registered for Self Assessment already, and to have submitted a tax return in the last two years.

What it asks a sole trader for is the ordinary furniture of your business: your business start date, your business name as it appears on your invoices, your business address, and the nature of your trade. You also confirm which tax year you are starting in, and flag any self-employment or property income that has ceased since your last return.

The first year is a free run at the quarterly deadlines

HMRC put a soft landing on the front of this, and it is worth knowing precisely how wide it is: "There are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year."

The free run covers quarterly updates only. There are no penalties for missing a quarterly update deadline in 2026-27, and update points start with the 2027-28 tax year. Your tax return is not covered: miss the 31 January 2028 deadline for the 2026-27 return and you earn a point straight away. Each missed quarterly update or return deadline earns a point, "the penalty point threshold is 4 points", reaching it costs £200, and each further miss at the threshold costs £200 again. You collect one point per deadline however many businesses you run, and below the threshold HMRC "will automatically remove each point 24 months after the missed deadline".

Late payment is a separate scale with its own arithmetic:

The grace period is the number worth carrying: in your first year of the new penalties you have 30 days from the payment due date to pay in full or to contact HMRC and set up a payment plan, and after that first year it drops to 15. So the first mandated year is the year to get the rhythm working while the cost of getting it slightly wrong is a diary correction rather than a bill. It is worth putting one hour of your accountant's time against the March before your first April, rather than the week of your first deadline.

What it costs

There is no monthly subscription on AEC Stack. The platform fee is 2.5% of each invoice processed through the platform, taken on the payment due date, which means the four quarterly totals are a by-product of getting paid rather than a separate exercise in data entry. Raise the invoice, record the material cost against it, and the income and expense figures a quarterly update wants have been adding themselves up since 6 April. Your bookkeeping and your billing stop being two jobs.

You already know your turnover for the year HMRC is reading. Put it into the MTD countdown and it will name your step, the day it commences, and the days you have left on it.