Do you need to use MTD for your building business?
MTD for Income Tax applies to sole traders. If you are a builder working alone, you are in scope if your qualifying income exceeds the threshold. Qualifying income is your total turnover from self-employment before expenses. It does not include employment income through PAYE or dividends.
The threshold is tested as more than the figure. Exactly £50,000 is not over the limit. If you have multiple income sources, such as self-employment and property, they are added together before testing the threshold.
| Tax Year | Qualifying Income Threshold | MTD Start Date |
|---|---|---|
| 2024-25 | Over £50,000 | 6 April 2026 |
| 2025-26 | Over £30,000 | 6 April 2027 |
| 2026-27 | Over £20,000 | 6 April 2028 |
How CIS deductions and materials work in your records
As a builder, you likely deal with Construction Industry Scheme (CIS) deductions. Under MTD, you must keep digital records of your income and expenses. This includes the gross amount you invoice and the net amount you receive after CIS deductions. The deduction itself is a payment on account towards your tax liability.
Materials and labour are recorded as expenses. If you use the cash basis, which is the default method, you record income when money is received and expenses when a bill is paid. You do not need to record the individual CIS deduction as an expense; you record the gross income and the net receipt, and the software handles the tax credit calculation.
- Record the gross value of your invoices as income.
- Record the net amount received after CIS deduction as the actual cash inflow.
- Record material costs and labour costs as expenses when paid.
- Keep digital records for at least 5 years after the 31 January submission deadline.
What each quarterly update contains
You must send four quarterly updates a year. Each update is a summary of your income and expenses by category, cumulative from 6 April. It is not a tax return. You send the totals, not the individual transactions.
You can send an update from the end of the period up to the deadline. If you expect no further transactions, you can send it up to 10 days before the period ends. You must send an update even if there is no income or no expenses for that period.
| Period End | Update Deadline |
|---|---|
| 5 July | 7 August |
| 5 October | 7 November |
| 5 January | 7 February |
| 5 April | 7 May |
After each update, you can see an estimate of your tax bill in your software or in HMRC online services. The tax return is submitted after the tax year ends, and any tax due is paid by 31 January.
Penalties and exemptions for builders
For the 2026-27 tax year, there are no penalty points for missing a quarterly update deadline. However, you must still keep digital records and send the updates. Penalty points still apply to the tax return deadline.
From 2027-28, missing a submission deadline results in one penalty point. If you reach 4 points, you face a £200 penalty, with further £200 penalties for each additional missed deadline. Late payment penalties are separate and apply to each late payment, but not to payments on account.
Getting your software ready
HMRC does not provide software. You must use compatible software that can create and store digital records, work with your chosen accounting period, and send quarterly updates. TradeKit is MTD ready - recognised by HMRC (reference D4K6ZS).
You will need to authorise the software to connect to HMRC. This authorisation must be repeated every 18 months. Ensure your software can handle CIS deductions and categorise materials and labour correctly for your building business.