CIS contractors face a specific and often misunderstood issue under Making Tax Digital: the threshold that determines whether you are subject to MTD is based on your gross CIS income before any deductions at source — not the net amount that hits your bank account after the main contractor has taken their cut.
For many CIS sub-contractors, this distinction is the difference between being above the threshold and below it. A contractor receiving £42,000 net might assume they are below the £50,000 limit — when their gross income of £52,500 actually puts them firmly in scope.
When a main contractor pays a CIS sub-contractor, they are legally required to deduct tax at source before making payment. The standard deduction rate is 20% for registered sub-contractors, or 30% for unregistered sub-contractors. Contractors with gross payment status receive the full amount with no deduction.
For tax purposes generally, your income is what you earned — not what you received after the deduction. The deduction is a tax payment on account, not a reduction in your income. HMRC treats your gross CIS earnings as your income. And for MTD threshold purposes, the same logic applies: it is the gross figure that counts.
Always use gross — what the contractor invoiced before any deduction. Net received understates your income.
Notice what happens here: the taxable profit is only £35,500 — well below the threshold. The net bank receipts are £43,600 — also below. But the gross qualifying income is £54,500 — above. The contractor in this example would not be subject to MTD if profit or net receipts were used, but is clearly in scope under the correct gross income rule.
Yes — and this catches many contractors off guard. If your CIS invoice includes both labour and materials, the full invoice amount counts as your qualifying income. Materials are an allowable business expense that reduces your taxable profit, but they do not reduce your qualifying income for the MTD threshold.
A carpenter who invoices £60,000 in a year — of which £20,000 is timber and fixings — still has £60,000 of qualifying income. The £20,000 in materials reduces profit but not threshold.
The only exception is where materials are genuinely recharged separately and can be demonstrated to be pass-through costs rather than income — but this requires clear documentation and is not the default position.
If you hold CIS gross payment status, main contractors pay you in full without deductions. Your qualifying income is still your gross earnings — but in this case your gross and your bank receipts are the same figure, so there is no confusion. You receive £54,500, and £54,500 is your qualifying income.
To qualify for gross payment status, you must pass HMRC's compliance and turnover tests. If you have gross payment status it is worth checking it remains in force — HMRC reviews it annually and can withdraw it if your compliance record deteriorates.
Most CIS sub-contractors work for several main contractors during a year. Your qualifying income is the combined gross total from all of them. Add together your gross earnings from every contractor, regardless of each individual amount. It is the annual aggregate that determines whether you are in scope.
| Contractor | Gross Earnings | Deduction (20%) | Net Received |
|---|---|---|---|
| Contractor A (registered) | £28,000 | £5,600 | £22,400 |
| Contractor B (registered) | £14,000 | £2,800 | £11,200 |
| Contractor C (gross status) | £11,000 | £0 | £11,000 |
| Total | £53,000 | £8,400 | £44,600 |
| MTD qualifying income: £53,000 — above £50,000 threshold. Mandatory April 2026. | |||
Under MTD, you must keep digital records of all income and expenses. For CIS contractors, this means:
Your quarterly updates to HMRC will need to reflect gross income figures. If your software only records what reached your bank, you will need to manually adjust — which is why using software with a proper CIS module matters.
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| Submission | Period | Deadline | Notes |
|---|---|---|---|
| Q1 Quarterly Update | 6 Apr – 5 Jul 2026 | 7 Aug 2026 | Soft landing — no points in 2026–27 |
| Q2 Quarterly Update | 6 Jul – 5 Oct 2026 | 7 Nov 2026 | Soft landing applies |
| Q3 Quarterly Update | 6 Oct 2026 – 5 Jan 2027 | 7 Feb 2027 | Soft landing applies |
| Q4 Quarterly Update | 6 Jan – 5 Apr 2027 | 7 May 2027 | Soft landing applies |
| Final Declaration | Full 2026–27 year | 31 Jan 2028 | NOT soft-landed — penalty point if late |
Enter your gross CIS earnings and get your mandatory date, readiness score and software recommendation.
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