CIS subcontractors and Making Tax Digital: how to report your income

Being paid under the Construction Industry Scheme (CIS) changes how money reaches your bank account. It does not change what you report to HMRC. Under Making Tax Digital for Income Tax, you report your full earnings and keep a separate record of the tax contractors have already taken.

How CIS deductions work

When a contractor pays you for construction work, they take a deduction from the labour part of the payment and pass it to HMRC on your behalf.

• If you are registered as a CIS subcontractor, the deduction is 20%.
• If you are not registered, it is 30%.

That gap is significant. On a £1,000 labour payment, a registered subcontractor receives £800 and an unregistered one receives £700. Either way, the deduction is tax you have already paid. It is not lost.

Quarterly updates use gross income

This is the point that trips people up. Your bank statements show what you received after deductions, but your quarterly updates must show the gross amount, before any CIS deduction was taken.

The same applies when working out whether you need to join MTD at all. Qualifying income is your gross self-employment turnover, plus any gross property income you have. CIS deductions do not reduce it. Our guide to MTD income thresholds explains when each level of income comes in.

If you have more than one income source, for example self-employment and a rental property, each has its own quarterly updates. You still submit a single tax return at the end of the year.

Keep your payment and deduction statements

Contractors should give you a statement showing the gross amount paid, the amount deducted and what you actually received. Keep these statements as evidence for your digital records, somewhere you can find them easily, and make sure the figures in your software match them.

They matter for two reasons. They are your evidence of the gross income you report each quarter. They are also your proof of the tax already paid, which you will rely on when the year-end bill is worked out.

If a statement is missing or the figures look wrong, raise it with the contractor sooner rather than later.

Worked example: Sarah, a bricklayer

Sarah is self-employed and registered for CIS, so contractors deduct 20% from her labour payments. She uses standard update periods. Her payments between 6 April and 5 July look like this:

Only £7,440 reached her bank account. In her first quarterly update, though, Sarah reports turnover of £9,300. She also records her allowable expenses for the period, such as any materials she bought herself or the business part of her van costs.

The £1,860 is recorded as CIS deductions. It is tax already paid towards her bill for the year.

Quarterly updates are cumulative. Her next update, covering 6 April to 5 October, will include these three months plus everything earned since. The MTD deadlines guide lists when each update is due, and GOV.UK covers the detail of sending quarterly updates.

What happens at the end of the year

After the tax year ends, you submit your tax return through software. This is when your actual bill is worked out, based on your profit for the year and any other income you have.

Your CIS deductions for the year are then set against that bill.

• If the deductions are less than the tax due, you pay the difference.
• If they are more than the tax due, the excess is repaid to you.

Many CIS subcontractors are in the second position, especially if they have significant expenses or a quieter year. This is a good reason to get your expenses recorded properly. Every allowable cost lowers your profit, and any tax deducted beyond what you owe comes back to you.

Two cautions. Depreciation is not an allowable expense, but the cost of tools and equipment can usually be claimed through capital allowances instead; an accountant can help with the amounts. And costs that are partly personal, like a phone or a van you also use privately, can be claimed only for the business part.

How Quarterwise records CIS deductions

Quarterwise records CIS deductions separately from income for a CIS subcontractor business. You enter the gross payment as income and the deduction alongside it, so your quarterly updates show the correct turnover and your running total of tax already paid stays visible all year.

Expenses are sorted into categories that follow HMRC’s self-employment boxes, such as materials and van costs. At the year end, Quarterwise files your tax return to HMRC as well as your quarterly updates. The Free plan covers one self-employment business, with full filing and no time limit.

This guide is general information, not tax advice.

Common questions

Last updated 6 October 2026. Quarterwise is software, not a tax adviser — if you’re unsure how the rules apply to you, check with HMRC or a qualified accountant.