Expert Guide on MTD for Construction SMEs in the UK

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is transforming how sole traders and landlords report their income. HM Revenue & Customs (HMRC) now requires digital recordkeeping and quarterly updates through approved software. MTD for construction SMEs is particularly important, as firms in this sector often manage complex projects, multiple subcontractors and a high volume of transactions. By moving to a digital accounting platform early, construction businesses can simplify compliance while gaining clearer visibility of profitability and cash flow.

Who must follow MTD for Income Tax

Sole traders and landlords must use the MTD ITSA service if they are registered for self-assessment, their business or property income exceeds a threshold and they keep records digitally. HMRC determines whether you must comply by looking at your qualifying income — the gross turnover from self‑employment plus receipts from property before deducting expenses. Partnerships and limited liability partnerships will join later.

Making Tax Digital ITSA Deadlines

The roll-out of MTD for Income Tax Self-Assessment is phased. Your starting date depends on your qualifying income:

• If your qualifying income is over £50,000 in the 2024-25 tax year, you must comply from 6 April 2026.
  
• If your qualifying income is over £30,000 in the 2025-26 tax year, you must comply from 6 April 2027.
  
• The government also plans to legislate to lower the threshold further. Those with income over £20,000 are expected to be brought into MTD. While initial guidance referred to 2026-27, a technical note issued in March 2025 suggested this expansion could instead take effect from April 2028.

If you fall within these categories, HMRC will write to you after reviewing your latest Self Assessment return and confirm when you must start using MTD ITSA service. However, it is your responsibility to check whether you need to sign up and ensure you have software in place.

What MTD means for construction firms

• Quarterly updates instead of annual returns. Businesses must send a summary of income and expenses to HMRC every three months through approved software. At year-end, you will finalise your figures and submit a “Final Declaration” digitally.
  
• Digital record‑keeping. Paper records and most manual spreadsheets will no longer be accepted. You will need software or bridging tools that can record each transaction and categorise income and costs correctly.
  
• Compatible software. HMRC maintains a list of MTD‑compatible packages. These include cloud‑based accounting systems that integrate bank feeds, invoicing, expense capture and CIS calculations. Cheap bridging tools exist to convert spreadsheets into digital submissions, but using full cloud software will provide better control for complex construction projects.

Why construction SMEs should act now

Avoid last‑minute disruption

MTD ITSA starts in April 2026 for higher‑earning sole traders and landlords and will extend to those earning over £30,000 a year later. Construction companies often have high turnover and cash flow peaks, so many directors will fall within the first two phases. Waiting until the eve of the mandate could leave you scrambling to transfer paper records or outdated software into a compliant system. Early adoption allows you to iron out issues and train staff.

Improve accuracy and business insight

Cloud accounting tools automatically import bank transactions and allow you to create invoices and record subcontractor payments in real time. This helps reduce human error and ensures you capture all costs. With digital records you can monitor each project’s profitability and cash flow. Accurate quarterly updates reduce the risk of HMRC penalties and make year‑end closing smoother.

Streamline VAT and CIS compliance

Many construction firms already use MTD for VAT. Cloud accounting software can handle both VAT and the Construction Industry Scheme (CIS), automatically calculating deductions for subcontractors and generating monthly CIS returns. Combining VAT, CIS, and MTD ITSA in one system minimises duplication and ensures consistency.

Unlock collaboration with your accountant

Using the cloud means your accountant can access your books in real time, correct mistakes and provide timely advice. When it is time to submit quarterly updates, your accountant can check the data and manage the submission on your behalf. It also makes it easier to prepare management accounts and budgets.

Steps to prepare for MTD for Construction SMEs

1. Review your income levels. Estimate your qualifying income for the tax years 2024‑25 and 2025‑26. If your turnover exceeds £50,000 or £30,000, respectively, plan for MTD from April 2026 or April 2027.
   
2. Choose suitable software. Research cloud accounting packages that offer MTD-compatible submissions and features suitable for construction, such as job cost modules, CIS, and retention tracking. Avoid low‑cost bridging tools unless your transactions are simple.
   
3. Digitise your records. Start keeping receipts, invoices and bank transactions in a digital format. Use smartphone apps to capture receipts on site. Please ensure each payment to subcontractors and suppliers is recorded promptly.
   
4. Set up bank feeds. Link your business bank accounts to your accounting software to automate transaction entry and reconciliation. This saves time and improves accuracy.
   
5. Train your team. Ensure finance staff and project managers understand the new processes. Run parallel records to test the system and make corrections before going live.
   
6. Seek professional help. Work with an accountant experienced in the construction sector. At Apex Accountants, we help clients assess their readiness, choose software, and migrate data smoothly.

The future of MTD

Government policy continues to evolve. The Spring Statement 2025 signalled an intention to bring taxpayers with income over £20,000 into MTD from April 2028. Digitalisation may eventually apply to all self-assessment customers. Partnerships and limited companies are likely to be mandated later, but no dates have been announced. Keeping up with current trends will facilitate the management of future changes.

How Apex Accountants’ MTD Services for Construction Management Firms Help

At Apex Accountants, we guide construction companies through every step of MTD preparation:

• Software setup – Selecting and implementing HMRC‑approved cloud systems.
• Digital record‑keeping – Training teams to capture invoices and receipts correctly.
• Quarterly submissions – Managing ongoing MTD reports to HMRC.
• Tax planning – Linking digital records to wider strategies for cash flow and profitability.
• Sector expertise – Tailored advice for construction projects, subcontractor management and compliance with CIS.

Final thoughts

Making Tax Digital for Income Tax is a significant shift for construction SMEs, but it also represents an opportunity. By embracing digital record‑keeping and cloud accounting now, you reduce the risk of non‑compliance and acquire invaluable knowledge about your business. As the deadlines approach, talk to Apex Accountants about planning your MTD journey. Our MTD services for construction management firms ensure your business remains compliant, efficient and profitable in the digital tax era.