Use the gross CIS income before tax deductions when checking relevant self-employment income for MTD. A smaller net bank receipt does not mean lower turnover. Keep the CIS statement so the gross income and tax credit can be reconciled separately.
Start with the payment statement
Keep the contractor’s payment and deduction statements alongside your invoices and bank records. Explain what was paid, what was deducted and whether materials or other amounts need separate consideration. Your accountant needs the underlying figures rather than only the net deposit.
For example, £1,000 of relevant income with a £200 CIS deduction can leave £800 arriving in the bank. Recording only £800 as income would not describe the original transaction properly. This simplified example is not a universal calculation for every invoice, especially where VAT or materials are involved.
Keep eligibility separate from the final bill
MTD qualifying income concerns relevant gross receipts, not the money left after tax deductions or business expenses. The accountant also needs to reconcile CIS tax already paid when completing the annual position. Do not deduct it again as an ordinary business running cost.
Tell the accountant about other work
Private jobs, another trade or rental income can affect the overall review. CIS status alone does not establish whether you need MTD.
A useful reconciliation check
For each contractor, compare the invoice, payment statement and bank receipt. Where the amounts differ, identify tax deductions, materials or other adjustments rather than forcing the figures to match by deleting the difference.
Is CIS tax deducted an ordinary expense?
No. It is tax paid in advance, not simply a cost of buying materials or running the business. Keep it identifiable so the accountant can review the credit against the final position.
Do contractors and subcontractors have the same obligations?
No. A contractor’s responsibilities for paying subcontractors are different from a sole-trader subcontractor’s own Income Tax work. If you do both, tell the accountant. An MTD service should not be assumed to include monthly contractor CIS returns unless that work is expressly agreed.
Next step: Share the contractor statements and full income records with TaxSimba so the bookkeeping and tax deductions can be reconciled within the agreed service.
Reconcile the deduction in pounds
For an illustrative £1,000 labour payment with £200 CIS withheld, the bank receives £800. The £1,000 is the starting income figure; the £200 is a tax credit. Do not use £800 as turnover and then deduct £200 again as an expense. Check materials and other items against the actual contractor statement.
Use the statement before checking turnover
Illustrative preparation example.
Your CIS bank deposits are lower than the stated income because deductions were withheld. Recover the gross figures from statements before testing MTD qualifying income. Do not use the smaller net receipts as a substitute for turnover.
Check: Can the gross income used in the threshold check be reconciled to CIS statements?
| Check | Practical action |
|---|---|
| Have CIS deductions reduced the income total? | Reconcile gross receipts before withholding rather than using net bank payments. |
| Are material reimbursements and other receipts captured? | Check the full trading-income records and the correct tax treatment of each amount. |
| Which threshold year applies? | Use the published look-back year and start date, not a current monthly payout. |
Do CIS deductions mean my reporting is already digital?
No. CIS withholding and MTD record and update duties are separate systems. Check whether both apply.
Can business costs bring gross income below the MTD threshold?
Expenses affect profit, but the qualifying-income test starts before expenses and CIS deductions.
Download a checklist for this guide
- Collect all contractor statements.
- Reconcile gross receipts to net payments and deductions.
- Add other relevant business or property income.
- Identify the correct look-back tax year.
- Check MTD scope and keep CIS credits separate.