Keeping projects on site moving is hard enough without worrying about tax rules changing under your feet. Right now, MTD and CIS sit near the top of the compliance list for builders, contractors, and subcontractors. If you run a construction business, you’re expected to keep digital records for VAT, plan for Making Tax Digital for Income Tax, and apply the Construction Industry Scheme correctly – all while pricing jobs, managing labour, and protecting cashflow. This guide sets out what’s live today, what’s coming next, where the pressure points often appear, and how we help firms tighten their systems so compliance becomes routine rather than stressful.
MTD for VAT is already mandatory for all VAT-registered businesses, meaning digital record-keeping and submitting returns through compatible software. MTD for Income Tax is the next phase: it starts from April 2026 for certain sole traders and landlords. Alongside that, CIS continues to require monthly returns, accurate deduction rates, and proper verification, with penalties if things slip. Against a mixed market backdrop, the sector is still moving: total UK construction output grew by 1.2% in Q2 2025 compared with Q1 (ONS, 2025). That growth rewards firms that stay organised and ready – and it’s where better systems around MTD and CIS can make a practical difference to time, accuracy, and margins.
Where MTD stands today
MTD for VAT: You must keep and maintain VAT records digitally and file through MTD-compatible software or bridging tools. That applies to all VAT-registered businesses, including construction, with digital links between your records and the VAT return. If you are still copying and pasting figures into the return, it is time to update your process and software stack.
MTD for Income Tax (MTD ITSA): HMRC has confirmed a phased start:
- Over £50,000 qualifying income for 2024/25: you must use MTD ITSA from 6 April 2026. (HMRC, 2025)
- Between £30,000 and £50,000 qualifying income for 2025/26: you must use it from 6 April 2027.
If you’re a construction sole trader or a landlord with property income, check your latest qualifying income and plan your transition now. HMRC will write to those it identifies, but it remains your responsibility to be ready (HMRC, 2025).
CIS essentials contractors cannot afford to miss
CIS is not new, yet many issues we see are avoidable. The fundamentals still apply:
- Verification: Check subcontractors with HMRC before paying them. This confirms their status and the deduction rate.
- Deduction rates: Apply correctly. The standard deduction is 20% for registered subcontractors and 30% for those not registered or unverified. Subcontractors with gross payment status are paid without deductions, but you still report them on the return.
- Monthly returns: File on time by the 19th of the following month, and pay deductions by the 22nd if paying electronically. Keep statements for each subcontractor.
Common pain points include missed verifications, incorrect classification of mixed supplies, and forgetting to include labour-only elements pulled from wider building contracts. Add the VAT domestic reverse charge for many construction services and it is easy to see how paperwork can overrun the job itself.
Digital record-keeping that actually works on site
The best MTD and CIS processes mirror how construction teams operate: mobile, fast, and with clear audit trails. Consider a practical setup that pairs your accounting platform with site-friendly capture tools:
- Source documents: Capture at the point of spend. Use phone-based apps to scan supplier invoices, plant hire bills, and fuel receipts. Digital copies meet MTD record-keeping needs and reduce lost paperwork.
- Project codes: Track costs to jobs. Set simple naming rules so labour, materials, and subcontractor charges land against the right site, ready for margin reviews.
- Subcontractors: Standardise onboarding. Build a short checklist that always includes identity checks, CIS verification, UTR capture, insurance documents, and bank details.
- Digital links: Keep data flowing. Avoid rekeying by connecting capture apps, accounting ledgers, and payroll/CIS tools through approved digital links.
Well-designed digital records help with pricing, re-bids, and cashflow forecasting. They also shorten quarter-ends and year-ends because the evidence is already in the system.
MTD and CIS: Practical steps for construction finance teams
Bring the two regimes together with a short, repeatable cycle that supports job managers as much as it satisfies HMRC:
- Quarterly reviews: Check MTD data quality before each VAT return. Confirm digital links, review error logs, and reconcile sales, purchases, and bank.
- Monthly CIS cycle: Verify, deduct, and file. Treat CIS like payroll – a fixed calendar item. Lock a checklist to the 19th so filings are never rushed.
- Reverse charge awareness: Brief project leads. Many supplies between VAT-registered construction businesses are reverse charged. Make sure invoices and purchase orders show the correct treatment to avoid under- or over-stating VAT.
- Gross payment status: Maintain eligibility. Subcontractors seeking or holding gross status must keep their tax affairs up to date; late payments or returns can jeopardise it.
- Bridging software: Use carefully. It can help spreadsheet-led businesses comply with MTD and CIS, but only if the underlying data is well-controlled and digitally linked.
Compliance challenges we see again and again
Even experienced teams hit the same snags:
- Mixed supplies: Separate labour and materials so CIS deductions apply only where appropriate.
- Incomplete records: Capture evidence for variations, dayworks, and retentions so revenue and VAT timing are right.
- Site-to-office gaps: Standardise processes so site managers, the accounts team, and subcontractors follow the same rules.
- Cashflow pressure: Reconcile deductions quickly and offset CIS suffered against PAYE/NI where eligible to keep cash moving.
- Year-end strain: Automate reports for CIS statements, VAT return workings, and job margins so the audit trail is ready.
The sector backdrop remains competitive, but activity is still moving: construction output rose 0.3% in June 2025 after a dip in May. Firms with clean data and dependable cycles can pivot faster when opportunities appear.
How we help construction firms make this simple
Our construction clients want compliance that runs in the background and information that helps price work with confidence. We support by:
- Scoping your digital stack: Choose software that fits your workflows and crew, including mobile capture and MTD-compatible filing.
- CIS control: Build a monthly cadence for verification, deductions, statements, and returns.
- Reverse charge checks: Review invoices and contracts to reduce VAT errors.
- Forecasting: Turn clean records into job-level reports so managers see margins and cash needs early.
- Readiness for MTD ITSA: Map responsibilities for quarterly updates and end-of-period statements if you’re within scope from 2026 or 2027.
If you would like to see how we approach this, start with our homepage and services overview: Coveney Nicholls.
Getting ready for what is next with MTD and CIS
The next 18 months matter. If your qualifying income puts you in the first MTD ITSA wave, build your process during 2025/26 so April 2026 is uneventful. If you are in the second wave for April 2027, the same preparation gives you cleaner numbers and fewer surprises. For VAT, keep digital links intact and test them each quarter. For CIS, keep verifications current, apply the correct rates, and file and pay on time. These are the habits that reduce HMRC risk and free up headspace for winning and delivering work.
Our advice is simple: stabilise your digital record-keeping, lock in a monthly CIS routine, and review both each quarter. With that base, you can respond to price changes, re-programme jobs, and spot cashflow pinch points early. Above all, good systems make compliance lighter and margins clearer – which is exactly what most firms want from MTD and CIS.
If you would like practical help to review your systems or to set up MTD and CIS processes that fit the way your teams work, we’re here to help. Talk to us about MTD and CIS readiness today and put a simple, durable plan in place.