MTD Quarterly Updates for CIS Subcontractors: Gross or Net, Cash Basis and VAT
By Remus Pantea · 14 July 2026 · 9 min read
Quick answer: Record your income gross — the full invoice amount before the 20% CIS deduction. Do not enter CIS deductions in quarterly updates at all: HMRC already has them from your contractors' monthly returns and credits them at the Final Declaration. Cash basis is the standard method, materials are ordinary expenses, and if you're under the VAT reverse charge your figures exclude VAT as usual.
Gross or net? Gross — here's the worked example
You invoice a contractor £1,000 for labour. They pay you £800 and send £200 to HMRC under CIS. In your MTD records:
- Income: £1,000 — the gross amount. That is your turnover.
- The £200 is not an expense and not a reduction of income. It is income tax you have already paid, held on your HMRC record against your name.
Recording £800 as income is the classic subbie mistake — it understates your turnover, corrupts your qualifying-income test for MTD, and makes your CIS statements impossible to reconcile at year end. Gross in the records, every time.
Where the CIS deductions actually go
Nowhere in your quarterly updates — and that's official. Your contractors file monthly CIS returns telling HMRC what they deducted from you; HMRC holds the running total against your record, and MTD-compatible software can retrieve it. The deductions are set against your final bill at the Final Declaration (due 31 January 2028 for 2026/27). If you disagree with what contractors have reported, you can submit your own figures after the fourth quarterly update, before finalising.
What you must keep is the paper trail: the CIS payment and deduction statements your contractors are required to give you each month they deduct. Those statements are your proof if HMRC's total and yours diverge.
Because most subcontractors have 20% taken off gross labour all year while their actual bill (after expenses and the personal allowance) comes out lower, the Final Declaration usually produces a refund — our CIS tax refund guide covers how much and how fast, and the CIS deduction calculator shows the arithmetic on any invoice.
Cash basis: the standard method
The cash basis is the standard accounting method for sole traders — you record income when it's received and expenses when they're paid, rather than on invoice dates. For a CIS subbie the practical rule: when the £800 lands in your account, you record £1,000 of income on that date (the gross amount of that payment — the £200 was "received" on your behalf as tax). You can opt for traditional accruals accounting instead, but if you don't choose, cash basis is what you're on.
Materials, tools and the 20%
Two separate things people mix up:
- In your records, materials you buy are ordinary business expenses in the usual categories — record them like any other cost, with the receipt kept digitally.
- On your invoices, the contractor deducts CIS from the labour element only, not from materials you itemise at cost. Itemising materials properly means less deducted from you during the year — money in your pocket now rather than in a refund later.
VAT — including the reverse charge
Most subcontractors under the £90,000 turnover threshold aren't VAT-registered: your records simply show the full amounts you actually pay (VAT included) as expenses, and no VAT on sales.
If you are VAT-registered, construction's domestic reverse charge usually applies to work for CIS-registered business customers: you don't charge VAT on those invoices at all — the customer accounts for it. Your MTD ITSA figures are your income and costs excluding VAT, exactly as on Self Assessment, and your VAT itself continues through your separate MTD VAT returns. Your software keeps the two apart.
What a quarter looks like for a subbie
- Scan materials receipts and fuel as they happen; photograph every CIS statement your contractors send.
- Record each payment received at its gross amount, on the date received.
- At quarter end: totals of gross income and categorised expenses go to HMRC through MTD software by the deadline — 7 August, 7 November, 7 February, 7 May. No CIS figures in the update.
- At year end: check HMRC's CIS total against your statements, then the Final Declaration sets your bill against the deductions — refund or balance follows.
New to the quarterly routine? Start with the first quarterly update guide and the quarterly checklist. Everything CIS-specific for your trade lives on our construction & CIS page.
FAQ
Do I put my CIS deductions in the quarterly update?
No. Quarterly updates contain income and expense totals only. Your contractors report the deductions to HMRC monthly, HMRC already holds them, and they are credited against your bill at the Final Declaration.
Do I record income before or after the 20% deduction?
Before — always the gross amount. If you invoice £1,000 and receive £800, your income is £1,000. The £200 is income tax your contractor has already paid to HMRC on your behalf, not a reduction of your income.
Do quarterly updates change my CIS refund?
No. The refund is worked out exactly as before, at the Final Declaration, when your actual tax bill is set against everything deducted during the year. Quarterly updates just mean HMRC's estimate of it builds through the year.
I'm VAT-registered under the domestic reverse charge — what goes in my update?
Your income for MTD ITSA is your sales excluding VAT, exactly as before. Under the reverse charge you don't charge VAT to CIS-registered business customers anyway, so the invoice amount is typically what goes in.
Sources
- HMRC, CIS subcontractors: pay tax and claim back deductions
- HMRC, CIS 340 — the full scheme guide (labour vs materials, deduction statements)
- HMRC, MTD ITSA service guide — CIS deductions at year end (no CIS amounts in quarterly updates)
- HMRC, Send quarterly updates
- HMRC, Cash basis accounting (standard method for sole traders)
- HMRC, VAT domestic reverse charge for construction
- PocketReceipt, CIS tax refund guide · CIS deduction calculator