Flooring contractors: screeds, underlay trade accounts, and MTD cash-basis tracking

Flooring jobs often combine customer deposits, merchant accounts and several types of installation. A carpet fitting contract can also have a different CIS position from other flooring work. Treating everything as one generic building-trade transaction can create avoidable errors.

Making Tax Digital is easier when the records show the materials supplied, the work contracted and the timing of payments. That information supports both the tax calculation and a useful review of each job’s margin.

When Making Tax Digital applies

Making Tax Digital for Income Tax changes how qualifying sole traders and landlords keep records and report income. Under HMRC’s timetable, the starting points are:

• From 6 April 2026, if qualifying income exceeded £50,000 in 2024–25.
• From 6 April 2027, if qualifying income exceeded £30,000 in 2025–26.
• From 6 April 2028, if qualifying income exceeded £20,000 in 2026–27.

Qualifying income generally means gross self-employment and property income combined, before expenses. Salary, pension income and dividends do not count towards this particular test. Check HMRC’s qualifying income guidance, including the treatment of VAT and shorter accounting periods where relevant.

The test uses the relevant earlier tax year; passing a figure during a busy month does not mean you join that day. Exemptions can apply. These rules concern your individual business and property income, rather than a limited company’s Corporation Tax reporting.

Materials and merchant accounts

Screeds, levelling compounds, damp-proof membranes, underlay, adhesives and threshold strips can be business costs where bought for customer work. Record the full customer price separately from those purchases, including materials supplied without a mark-up.

Keep the invoices behind each trade account settlement. If one payment covers three orders and a credit note, the bank debit alone cannot explain the allocation. Avoid claiming both an invoice and the payment that settles it as separate expenses.

HMRC’s materials and stock guidance sets out the general categories. Private flooring bought for your own house needs excluding, even where it shares an order with business stock.

What the cash basis changes

Under the cash basis, eligible income and expenses generally follow money received and paid. An unpaid customer invoice is therefore different from money already in the bank, and an unpaid merchant bill is different from a completed payment.

Keep an outstanding-invoice list for collecting debts and a supplier balance list for managing commitments. Those operational records remain useful even though cash timing drives the tax calculation. Traditional accounting instead considers the appropriate accruals, stock and work in progress.

Ordinary customer advances generally count when received under the cash basis. Do not automatically move a March payment into April because installation happens then. A genuinely refundable security sum requires separate consideration of the agreement.

Tools, meters and protective equipment

Carpet kickers, stretchers, moisture meters, heat guns and other equipment may qualify for relief. Most eligible equipment is deducted when paid for under the cash basis; traditional accounting normally uses capital allowances. Depreciation is not itself an allowable tax deduction.

Keep calibration, servicing and replacement parts separately identifiable. Section 34 of the Income Tax (Trading and Other Income) Act 2005 provides the business purpose test, including the need to exclude private use.

Suitable protective equipment can qualify, but ordinary clothes do not become deductible merely because you wear them at work. For vehicle costs, use a consistent mileage or actual-cost method where eligible and avoid duplicating costs covered by mileage.

Carpet fitting has a specific CIS exclusion

HMRC’s CIS 340 guide explains that carpet fitting is excluded under Statement of Practice 12 (1981). That particular exclusion does not extend to other floor coverings.

However, carpet fitting within a mixed contract that also includes construction operations can bring the whole contract within CIS. Other floor-covering work must be assessed in its construction context; the fact that the material is vinyl or laminate does not remove the need to examine the operation and contract.

Keep the scope of work and contract, rather than deciding from the word “flooring” on a bank transfer.

Worked example: payments under the cash basis

Niamh is not VAT registered. She receives £1,200 from a customer on 28 March for an April installation, pays £700 for materials on 30 March and receives the remaining £800 on 12 April. Assume ordinary advance payment terms and no CIS deduction for this domestic job.

March records show £1,200 income and £700 expense: £500 before other costs. April records show the £800 balance, plus any further costs paid then. The tax-year boundary follows the actual dates; the project budget can still show the whole £2,000 job together.

If a different contract involves CIS deductions, record gross earnings and CIS tax separately. Keep the payment and deduction statement. The amount withheld is not a business expense, and your MTD quarterly update does not replace any monthly contractor obligations you may have when paying subcontractors.

Close the loop on each installation

Check customer balances, returned materials and hire charges when the work ends. Avona AI can support categorisation, while clear invoices establish which costs and receipts belong together. Keep enough contract detail to revisit a CIS decision if the scope changes during the job.

A manageable quarterly routine

For a business using standard tax-year periods, the 2026–27 quarterly update deadlines are 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. Updates are cumulative: each covers the tax year so far. Calendar update periods are also available, with the same deadlines.

Keep digital income and expense records, reconcile them regularly and send the required totals through compatible software. The Income Tax (Digital Obligations) Regulations 2026 underpin the requirements; HMRC’s digital record-keeping notice explains the applicable directions. A bank feed needs supporting detail wherever a payment conceals fees, private purchases or several transactions.

Normally, record the transaction date, amount and relevant category, retaining supporting invoices or receipts. HMRC’s digital records guidance explains permitted simplifications and digital links where more than one software product is used.

Quarterly updates do not replace the annual tax return. The 2026–27 return is due by 31 January 2028, and normal tax payment dates continue. HMRC is not applying late quarterly update penalties for 2026–27, but digital records and updates are still required. That first-year approach does not waive other filing or payment obligations.

Give each flooring job a clear record

Accurate payment dates and contract details make quarterly reporting more manageable. Explore Avona.app at £15/month, or Avona Concierge, managed by chartered accountants, starting from £60/month, for ongoing support with your accounts.