Making Tax Digital · Sole traders
Building contractors: handling plant hire, subcontractors, and MTD reporting
ONLY£15A MONTHMTD for building contractors: distinguish turnover and profit, manage plant hire and subcontractors, and keep CIS, VAT and updates clear.
A £30,000 customer payment can look reassuring until you line up the timber account, scaffolding invoice, plant hire and subcontractor payments waiting behind it.
For a building contractor, turnover and money available to spend are very different things. Making Tax Digital for Income Tax depends on the former, while good business management requires a clear view of both.
The most useful records follow the job from customer payment to material purchase and subcontractor settlement. That gives you a reliable starting point for quarterly updates and a better understanding of whether the project earned what you expected.
High turnover can bring a modest-profit business into MTD
For sole traders, the MTD entry tests use gross qualifying income before expenses. More than £50,000 in 2024–25 means entry on 6 April 2026; more than £30,000 in 2025–26 means 6 April 2027; more than £20,000 in 2026–27 means 6 April 2028. Exemptions can apply. See HMRC’s entry timetable.
Combine relevant sole-trader and property income when making the check. A limited company or partnership requires a different assessment. Crossing a turnover milestone during a project does not itself create an immediate mid-year MTD start.
Worked example: £150,000 of sales and a 15% margin
Consider these illustrative annual figures for a VAT-registered sole-trader builder who consistently records income and expenses excluding VAT:
| Item | Amount excluding VAT |
|---|---|
| Customer income | £150,000 |
| Materials supplied to jobs | £60,000 |
| Subcontractor costs | £42,000 |
| Plant, scaffolding and other allowable costs | £25,500 |
| Profit before personal tax | £22,500 |
The £22,500 profit is 15% of sales. The income relevant to MTD from this business is still £150,000. HMRC’s qualifying-income guidance explains the gross test and how VAT can affect the figure for cash-basis businesses.
A substantial material bill does not make the customer’s payment someone else’s turnover when you supply those materials as part of your own contract.
Make job costs easy to trace
Use one job reference across the quote, customer invoices and supplier records. It can be a simple number or short description. The purpose is to identify which project incurred the spending.
Typical building costs to capture include:
- Excavator, dumper and other plant hire.
- Scaffolding, skips and applicable permits.
- Aggregates, structural steel, timber and fixings.
- Site protection, consumables and specialist equipment hire.
- Properly recorded subcontractor payments.
Section 34 of the Income Tax (Trading and Other Income) Act 2005 requires deductible expenditure to be wholly and exclusively for the trade. HMRC explains this rule. Apply it to mixed purchases and exclude private expenditure.
For Travis Perkins, Jewson or other merchant accounts, retain invoices and credit notes as well as statements. The monthly settlement is not a second expense if the invoice is already recorded under the method you use.
Identify refundable plant-hire deposits separately from hire charges. Check damage charges, fuel adjustments and returned-material credits against the original job. These often explain why a project’s final margin differs from the estimate.
Keep the two sides of CIS separate
A building business can be a CIS contractor when paying subcontractors and a CIS subcontractor when working for another contractor. HMRC’s CIS overview explains this dual role.
When you pay subcontractors
Check employment status, register where required and verify the subcontractor. Apply the rate HMRC gives you: generally 20%, 30% or 0% for gross-payment status. The deduction calculation excludes qualifying amounts such as VAT and directly purchased materials under the rules. HMRC explains the calculation.
For example, take a £2,500 invoice made up of £2,000 labour and £500 eligible directly purchased materials. With no VAT in this illustration and a 20% deduction rate, CIS withheld is £400. You pay the subcontractor £2,100 and account for £400 to HMRC.
The records need to explain the £2,500 cost and the two destinations for its payment. The £400 withheld does not become your income. Record the liability and avoid double-counting the remittance to HMRC as an additional subcontractor expense.
When another contractor deducts CIS from you
Record your own gross business income and the CIS tax withheld separately. The deduction normally counts towards your personal tax position, rather than reducing your sales or becoming a business expense. Retain payment and deduction statements to support the claim. HMRC explains how deductions are credited.
Do not casually offset tax withheld from your receipts against deductions you owe as a sole-trader contractor. They are separate accounting and reporting obligations.
Keep monthly CIS duties on their own calendar
MTD quarterly updates do not replace CIS returns. A contractor’s monthly return is generally due by the 19th after the tax month ends, and monthly electronic payments of deductions are generally due by the 22nd. See HMRC’s CIS return rules and payment guidance.
For example, payments in the tax month ending 5 October belong in the CIS return due on 19 October. Keep that review separate from your MTD update due in November.
If subcontractor activity stops, check the nil-return or inactivity procedure. A quiet month should not simply disappear from the administrative calendar.
Distinguish VAT, cash basis and equipment decisions
VAT registration has its own threshold and timing tests. The main UK threshold is £90,000 of taxable turnover over the previous 12 months, with a separate test for expected turnover in the next 30 days alone. HMRC explains registration.
Construction supplies can also fall within the domestic reverse charge when its conditions are met. It does not apply automatically to every building invoice. Check HMRC’s construction reverse-charge guidance, including the customer’s status and the relevant supply.
Separately, eligible sole traders normally use cash basis unless they choose traditional accounting. Ordinary customer deposits generally follow receipt under cash basis. Qualifying equipment purchases bought outright generally follow payment, while traditional accounting usually gives equipment relief through capital allowances. Keep large plant purchases and finance contracts identifiable so the correct route can be applied.
Turn site paperwork into a short regular review
Take clear copies of receipts while the print is legible, add the job reference and keep the complete invoice. Before an update, reconcile bank and cash receipts, merchant credits, subcontractor statements and customer deposits.
Under the Income Tax (Digital Obligations) Regulations 2026 and HMRC’s reporting direction, updates use your digital business records.
Standard 2026–27 deadlines are 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. Each update is cumulative from 6 April. HMRC sets out the period dates.
Your annual 2026–27 return is due by 31 January 2028. Updates do not introduce quarterly income-tax payments. The first-year quarterly penalty relief does not suspend separate CIS or VAT duties.
Choose support for the way your business operates
Clear job records help you see the profit behind substantial customer payments. Avona.app costs £15/month, with Avona AI helping categorise transactions for your review. CIS statements and mixed merchant invoices still need their supporting detail.
For managed support from chartered accountants, Avona Concierge starts from £60/month. Explore the Avona options and choose the level of help that fits your projects and subcontractor workload.