MTD for CIS subcontractors: turnover, deductions and records

The CIS subcontractor money model

A subcontractor may invoice a contractor for labour, materials and sometimes plant, travel or extras. The contractor may verify the subcontractor and deduct CIS at the relevant rate. The bank may only show the net payment after deduction, but the tax return and MTD records need to recognise the underlying income and the tax already deducted.

This is why MTD for CIS is not just "connect the bank account". A bank feed can show net receipts, but it may not show the deduction statement. It also may not split labour from materials, or show whether a payment relates to a particular month, job, retention or correction. Good digital records should match invoices to contractor deduction statements and bank deposits.

Competitor pages often sell construction software or make broad statements about quarterly updates. Accountancy Ally should beat them by giving the subcontractor a practical pack: gross invoices, CIS statements, materials evidence, tools, mileage, insurance and a list of questions to ask before paying for software.

Examples where CIS subcontractors get stuck

• A carpenter receives £2,400 in the bank after CIS has been deducted. The accountant needs the gross invoice and deduction statement, not only the deposit.
• A builder charges for materials and labour on the same invoice. The material element should be evidenced separately because it affects CIS treatment and profit records.
• A subcontractor works for three contractors and one sends late deduction statements. The record process should chase missing statements monthly, not at tax-return time.
• A tradesperson has CIS work and separate domestic jobs outside CIS. Both income streams may be self-employment income, but the records and tax deductions differ.
• A subcontractor uses a personal van for work. Mileage, fuel, repairs, finance and private-use notes should be decided consistently.

Common mistakes

The biggest mistake is treating net CIS bank receipts as turnover. That can understate income and make the MTD threshold check unreliable. A second mistake is treating CIS deductions like ordinary business expenses. They are tax already deducted, so they need to be tracked separately from materials, tools or mileage.

A third mistake is assuming that being "under CIS" means the contractor has handled your tax completely. CIS can reduce the final tax bill or create a refund, but you may still need Self Assessment, proper expense records and MTD if thresholds are met. Subcontractors should also avoid choosing software that cannot handle deduction statements cleanly.

What to write in your first accountant message

Try: "I am a self-employed CIS subcontractor. My gross CIS invoices last tax year were about this amount before CIS deductions. I also have these non-CIS jobs. I need to know when MTD applies and how to record gross income, CIS deductions, materials, van costs and tools." Attach one invoice, one contractor deduction statement and a monthly income summary.

A monthly CIS workflow

For CIS subcontractors, monthly is usually the natural rhythm because contractors issue deduction statements by tax month. Save each contractor statement as soon as it arrives, then match it to your invoice and bank receipt. If a statement is missing, chase it that month. Waiting until January can turn a simple tax-credit record into a reconstruction exercise across several contractors.

Your monthly MTD pack should show gross labour, materials charged to the contractor, CIS tax deducted, net payment received, unpaid invoices, retentions and any corrections. Add expenses at the same time: materials bought yourself, tools, PPE, insurance, training, mobile phone, van costs, mileage, parking and finance costs. If you did domestic work outside CIS, keep it in a separate income line so the accountant can see the difference between CIS work and ordinary trading income.

Software and contractor-statement setup

Ask whether the software can record CIS deductions clearly or whether the accountant needs a separate CIS schedule. Some software is built for normal sales invoices but does not make contractor deduction statements obvious. If you use spreadsheets, ask what columns the accountant wants before MTD starts: contractor, invoice date, gross labour, materials, CIS deduction, VAT if relevant, net paid, bank date and statement received. That structure is often more useful than a pile of PDFs.

Questions to ask an accountant

• Should I check MTD using gross CIS income or net bank receipts?
• How should CIS deductions be recorded in the software?
• Can the software handle labour, materials, retentions and contractor statements?
• Do my non-CIS jobs need separate tracking?
• Will you handle quarterly updates and year-end CIS reconciliation?

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