Are you a contractor in the UK? If so, Making Tax Digital (MTD) may apply to you. MTD is the process of digitalising tax to comply with HMRC. Some recent changes have been made, meaning MTD now applies to a new group of individuals, including certain contractors.
To find out more about which contractors must comply with MTD and how they’ll be affected, continue reading our MTD for contractors guide.
What is Making Tax Digital?
MTD is a government initiative to digitalise tax reporting to improve and modernise the UK tax system, involving the replacement of paper and Excel with HMRC-compatible software instead.
MTD was introduced a while back and has now expanded to Income Tax Self-Assessment (ITSA) as of April 2026. Similar to other tax filings, MTD has its own set of rules, and late submissions or general failure to comply will result in fines and penalties.
Types of Contractors Affected by Making Tax Digital
If you’re self-employed, working under CIS, or VAT-registered, MTD requirements are likely to apply to you.
Self-Employed Contractors
From April 6, 2026, MTD for ITSA starts, affecting all self-employed contractors who have a qualifying income above a certain threshold:
- 2026 – £50,000 threshold
- 2027 – £30,000 threshold
- 2028 – £20,000 threshold
If you’re a self-employed contractor with £50,000 or more of qualifying income, you must comply with MTD rules from April 6, 2026. This means that you must prepare and transition from paper or Excel to digital filings using HMRC-compatible software.
Construction Industry Scheme (CIS) Contractors & Subcontractors
The Construction Industry Scheme (CIS) is an HMRC initiative that requires contractors to make deductions, including 20% of payments from registered subcontractors and 30% from unregistered subcontractors. These deductions are passed to HMRC as advance payments toward subcontractors’ tax liability.
Similarly, from April 6, 2026, MTD for ITSA will also apply to CIS contractors and subcontractors who exceed the same income thresholds (£50,000). In short, the same MTD for ITSA rules apply to CIS contractors and subcontractors above the current qualifying income threshold.
VAT-Registered Contractors
MTD isn’t a new initiative. In fact, it was introduced in 2019 for VAT-registered contractors before further changes were made in 2022:
- April 1, 2019: VAT-registered contractors with a turnover of £85,000 or more had to comply with MTD
- April 1, 2022: VAT-registered contractors, regardless of turnover, must comply with MTD
As of 2026, the rules set in 2022 still apply. This means that if you’re a VAT-registered contractor, you must continue complying with MTD as you have already been – no changes needed!
Benefits of Making Tax Digital for Contractors
MTD may seem slightly overwhelming if you’re new to the rules, but it actually brings many benefits to contractors:
- Accuracy – Digital records can help reduce common errors, such as misplaced figures or forgotten expenses that must be included come submission time
- Compliance – Spot potential issues sooner, stay compliant, and avoid penalties by reviewing your finances more regularly through quarterly updates
- Time – Using modern software and hiring an accountant allows you more free time to focus on other important aspects of working as a contractor
- Visibility – Manage cash flow more easily with real-time insights for improved visibility, which allows for a much clearer picture of your financial position
- Convenience – No need to rely on paper systems, as everything is in one place on a digital platform
How Making Tax Digital Affects Contractors
Apart from VAT-registered contractors who have been complying with MTD since 2019 or 2022, self-employed contractors, CIS contractors, and subcontractors will now be affected by MTD.
Here’s how MTD will likely affect you from April:
- Digital records of all income/expenses are required using HMRC-compatible software
- Quarterly updates and final declaration replace the paper Self Assessment tax return
- Four quarterly updates due per year (7 August, 7 November, 7 February, and 7 May)
- Final declaration must be submitted by 31 January 2027
- Submissions must be sent by the set deadlines
If you feel as though MTD is going to impact your free time, we highly recommend seeking professional support from an MTD accountant to help you prepare early, ensure compliance, and avoid costly mistakes that result in late penalties.
Deadlines for Contractors
If you’re a contractor due to start using MTD, you should know the deadlines you’ll have to meet. The current MTD thresholds and deadline dates for self-employed contractors, CIS contractors, and subcontractors are as follows:
| Tax Return | Qualifying Income Amount | Start Date |
|---|---|---|
| 2024/25 | £50,000 or more | 6 April 2026 |
| 2025/26 | £30,000 or more | 6 April 2027 |
| 2026/27 | £20,000 or more | 6 April 2028 |
Typically, HMRC will assess whether the income on your Self Assessment tax return means you must start using MTD.
However, it’s generally advised to check your own qualifying income and sign up voluntarily if you believe using MTD will apply to you from April 2026. Failure to use MTD or submit quarterly updates will result in fines and penalties.
Penalties
Late Submission:
- 1 point for every missed quarterly update or tax return
- 4 points = £200 penalty plus a further £200 per late submission
Late Payment:
- Penalty grows the longer you delay payment
- Daily interest is added until paid
Making Tax Digital Accountants for Contractors
At LJS Accounting Services, we have a highly experienced team of MTD accountants who help a wide range of clients transition to digital records, including contractors. Additionally, we offer expert payroll and CIS services to save time and ensure regular submissions are sent on time for contractors working in all industries, commonly including construction.
As part of our services, we’ve fully adapted to digital rules, now offering assistance for self-employed and CIS contractors who must comply with the new rules. Our team will help you adapt to MTD for self-employed by offering advice and support to save you time, while ensuring your digital records are filed accurately and in compliance with HMRC.
If our MTD for contractors guide has helped you better understand new digital tax rules and you’d like to find out more, please contact our friendly MTD accountants today.
FAQs
What if I can’t make any tax payments?
If you’re unable to make any tax payments by the deadline, we advise you to contact HMRC as soon as possible. It’s possible to avoid penalties by reaching out to set up a payment plan, which allows you to pay your tax bill in instalments. However, please be aware that payment plans aren’t always agreed upon, and you may still receive a penalty.
