Making Tax Digital for Income Tax: What construction industry workers need to know

A major change by HMRC affects many self-employed individuals in the construction industry. If you're a subcontractor or sole trader earning over £50,000, you need to comply with Making Tax Digital for Income Tax (MTD IT). It's a government initiative designed to modernise the tax system. Here’s what you need to know and how to get ready.

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What is Making Tax Digital for Income Tax (MTD IT)?

MTD IT currently affects anyone who is self-employed and/or earns income from property if the total annual income from these sources combined is over £50,000. The threshold will reduce to £30,000 in April 2027 and will reduce further to £20,000 in April 2028.

Instead of completing a single annual Self Assessment tax return, you’ll need to:

Keep digital records of your income and allowable expenses
Submit quarterly income and expense cumulative (year-to-date) summaries to HMRC - using HMRC-recognised software
Send a final declaration at the end of the year

MTD IT isn’t just about compliance - it can also offer practical advantages:

Clearer insight into your earnings and tax position throughout the year
Easier tracking of allowable business expenses
Fewer surprises at tax time, with better financial control overall

With the right setup, many subcontractors will find it easier to stay on top of their tax and cash flow.

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Why this matters for those in the Construction Industry Scheme (CIS)

If you're CIS-registered and already dealing with deductions at source, MTD IT might feel like just another layer of admin. But it’s important to understand how MTD IT and CIS will need to work together from now on.

Under MTD IT, you need to digitally track all your income (including CIS deductions made by your contractor/company) and report these through MTD IT-compatible software. HMRC is not providing free software for MTD IT.

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Common challenges to expect

Many self-employed people in the construction industry still rely on paper-based recording or spreadsheets to manage their finances. Under MTD IT:

You must use HMRC-recognised digital software
You’ll need to keep real-time digital records of income and expenses
CIS deductions must be recorded and reported accurately by your contractor/company

From April 2026, you won’t be penalised for late or incorrect quarterly MTD IT updates in your first year, but you must still submit all four using HMRC-recognised software. This is because you cannot file your 2026/27 (annual declaration) tax return without them. That year-end return is still fully subject to HMRC penalties if it’s late (ie after 31 Jan 2028).

To avoid a hefty workload in January 2028, it's wise to use the whole of the 2026/27 year to build your MTD IT familiarity and compliance.

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Can I still use my spreadsheets?

Yes, you can. HMRC allows spreadsheets for digital record-keeping under MTD IT, including Excel and Google Sheets. However, spreadsheets on their own cannot submit your information to HMRC, as they do not have the required connection to send data directly.

This means that while your spreadsheet can still hold your records, you need MTD IT-compatible software to complete your submission to the HMRC portal.

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What is HMRC-recognised MTD IT software?

To comply with MTD IT, you must use HMRC-recognised software. This can be full accounting software or bridging software that connects spreadsheets to HMRC. TaxNav offers both and is HMRC-recognised.

TaxNav is designed for people with simple tax affairs and works well for those working in construction and other building-related trades. It’s also designed with affordability in mind, and using the TaxNav software you can cost-effectively:

Record income and expenses directly into the software, via a browser on your phone or computer
Continue using Excel spreadsheets if you prefer, by submitting figures through our handy bridging software
Use one of TaxNav’s spreadsheets if you’d like
Submit quarterly updates and your final declaration in one simple and easy to use place

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What construction workers should do next

If you haven’t started yet, don’t panic. Focus on the basics:

Check when you need to comply with MTD IT on the HMRC website
Sign up with HMRC if you are part of MTD IT this year
Choose your software - don't forget, TaxNav offers a 30-day free trial
Start keeping digital records
Diarise your quarterly updates deadlines
Diarise your final (annual) declaration deadline

Once those are in place, everything else follows naturally.

People with income over £30,000 from self-employment and/or property will need to join MTD IT from April 2027. You can, however, volunteer to join early and get familiar with it before your HMRC deadline.

With TaxNav you automatically get a 30-day free trial and we offer low-cost subscriptions to keep things affordable. An annual subscription is £60+VAT or pay as you go for £6+VAT per month.

Explore and try out our user-friendly MTD IT software

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