Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is one of the most significant changes to the UK tax system in recent years. Instead of relying on paper records or annual submissions alone, MTD requires taxpayers to keep accurate digital records and submit updates using approved software.
Crucially for CIS subcontractors, HMRC calculates your eligibility based on your 2024/25 gross turnover, not your take-home pay. They measure it before subtracting business expenses or the 20% CIS deduction. If your total invoices topped £50,000, you’ll need to track every receipt digitally and submit updates through HMRC-approved software. Otherwise, you’ll face the new 2026 penalty points system.
Understanding Gross Income Under CIS
For CIS subcontractors gross income is one of the most important figures to understand when preparing for MTD for CIS. HMRC uses this number to decide whether you need to comply with MTD, so getting it right is essential. When calculating your gross income under CIS, make sure to include:
- All payments from contractors for your work, even if some tax was deducted at source.
- CIS deductions are still part of your total earnings.
- Other self-employed income related to your construction work.
It’s important to remember that business costs like materials, tools, or travel are not subtracted when calculating gross income. HMRC looks at your total earnings, not your profit. Many subcontractors make mistakes when working out their gross income. A common error is deducting expenses too early, but gross income is based on your total earnings before any costs are taken off. Another mistake is ignoring CIS deductions, as tax taken at source still counts as part of your gross income. Some people also mix personal income with business income, but only money earned from CIS work or related self-employment should be included.
MTD for CIS Income Thresholds
These thresholds decide when you must start using MTD for CIS to keep digital records and report your income to HMRC. MTD for CIS is being introduced in stages, giving subcontractors time to get ready:
- If your gross income from self-employment, including CIS earnings, surpasses £50,000, you will be required to join MTD beginning in April 2026.
- From April 2027, the threshold lowers to £30,000, which means more subcontractors will need to comply.
You must start using MTD for CIS once your gross income goes over the threshold in a tax year. HMRC tracks your earnings, and crossing the limit makes digital reporting compulsory. This ensures all subcontractors report their income accurately and on time.
How Gross Income Affects Subcontractors Compliance
Gross income does not directly decide MTD compliance for CIS subcontractors but taxable income does. From April 2026, subcontractors must use Making Tax Digital for Income Tax if taxable income exceeds £50,000 in a tax year (after subtracting CIS deductions and allowable expenses).
Gross income (total payments received) is your starting point, but compliance triggers only on taxable income after allowable expenses. Example: £70,000 gross minus £10,000 expenses = £60,000 taxable (above £50k threshold, so MTD required). CIS deductions provide tax relief separately, not threshold relief. Monitor receipts, deductions, and expenses quarterly to stay compliant without surprises. Use HMRC’s CIS statements and simple accounting software to track your taxable total early and sign up by 6 April 2026 if needed, avoiding penalties.
Why HMRC Focuses on Gross Income
HMRC focuses on gross income because it gives a full picture of your earnings. Even if you spend a lot on materials or other business costs, your total income shows your true financial activity.
Impact on Small vs High-Earning Subcontractors
- Small subcontractors with lower gross income may not need to join MTD immediately, giving them more time to prepare.
- High-earning subcontractors reach the threshold faster, meaning they must adopt digital record-keeping and submit quarterly updates sooner.
What Happens if You Cross the Threshold
If your gross income exceeds the threshold, you must join MTD for CIS from your next reporting period. Regularly tracking your gross income helps you plan ahead, avoid surprises, and stay compliant with HMRC rules.
What CIS Subcontractors Must Do Under MTD
Once your gross income exceeds the threshold, CIS subcontractors need to follow certain steps to stay compliant with MTD for CIS. These steps ensure your income is reported accurately and on time.
Digital Record-Keeping Requirements
The first step is keeping digital records. You must use HMRC approved software to record all income, including payments from contractors and CIS deductions. This makes it easier to track your earnings and ensures your records are always up to date.
Quarterly Updates to HMRC
Instead of submitting a single Self Assessment once a year, MTD requires quarterly updates. Every three months, you report your income and expenses to HMRC using your digital software. This keeps your tax information current and reduces the risk of errors at the end of the year.
End-of-Year Final Declaration
At the end of the tax year, you submit a final declaration. This confirms that all your quarterly updates are correct and reconciles any remaining income or tax adjustments. It’s the last step in the MTD process and ensures your tax records are complete and accurate.
Final Thought
Understanding gross income is crucial for CIS subcontractors preparing for MTD for CIS. Your gross income, the total money you earn before deducting expenses, decides when you must start digital reporting, how often you submit updates to HMRC, and when MTD becomes mandatory. Getting this right helps you stay compliant with HMRC rules and avoid fines. For more guidance on MTD and how your income affects tax reporting, book a free consultation with SwiftAcc.
