Making Tax Digital for Construction: What Changes and When

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MTD is HMRC's plan to move everything digital -- no more shoeboxes and one annual panic in January. If you're self-employed in construction, this is heading straight at you.

1. What's already live -- MTD for VAT

Most VAT-registered businesses must already:

• Keep digital records of their VAT transactions, and
• File VAT returns using MTD-compatible software or bridging tools, not by typing figures into the old online form.

If you're VAT-registered and still running on paper + manual entry to HMRC, you're out of step with current rules -- the MTD VAT regime is already here.

2. What's coming -- MTD for Income Tax (MTD ITSA)

MTD ITSA is the next wave, and it's squarely aimed at sole traders and landlords.

• From 6 April 2026, MTD ITSA will apply to individuals with "qualifying income" over £50,000.
• Qualifying income means your gross income from self-employment and property combined (before expenses), based on your 2024/25 tax return.
• From 6 April 2027, the threshold is due to drop to £30,000, bringing in more small businesses.

So:

• A self-employed builder with £52,000 gross income in 2024/25 will be in the first wave from April 2026.
• A builder with £35,000 gross might be brought in from April 2027.

Partnerships, companies and very low-income sole traders are on different timelines, but the bulk of one- and two-man bands in construction will get hit by this over the next few years.

3. What changes under MTD ITSA

If you're in scope, your life changes from "one tax return a year" to year-round digital reporting.

Main changes

• You must keep your business records in digital form -- either:
  • In bookkeeping software, or
  • In spreadsheets plus a bridging tool that can talk to HMRC's system.
• You must send quarterly updates to HMRC for each business:
  • Every 3 months, you'll submit summary figures of income and expenses.
• At the end of the year, you submit:
  • An End of Period Statement (EOPS) for each business, making adjustments (capital allowances, disallowable expenses, etc.), and
  • A final declaration that replaces the old Self Assessment form and tells HMRC your final tax and NI due.

The tax you pay is still based on the full year, not each quarter, but HMRC will see your numbers in near real time.

Construction-specific point: quarterly updates will be a soft summary, not 1,000 individual invoices -- but you won't be able to get away with a shoebox and one big guess next January.

4. Software -- what you actually need

MTD ITSA means you cannot just write numbers in a diary and type totals into HMRC's site once a year. You need:

• Either full bookkeeping software (cloud or desktop) that is HMRC-recognised for MTD ITSA; or
• Spreadsheets plus a bridging tool that will submit quarterly updates and annual figures in the right format.

Start using software early -- at least a year before MTD hits you -- so you're not learning it at the same time as dealing with HMRC deadlines.

5. Five-step plan for a sole-trader builder

Step 1 -- Work out if and when you're in scope

• Look at your last full tax year (e.g. 2024/25).
• Add up your gross self-employed income (before expenses) and any UK property income.
• If that total is over £50,000, you'll be in the first MTD ITSA wave from 6 April 2026.
• If it's between £30k and £50k, assume you'll be pulled in around April 2027.

Step 2 -- Choose your digital system

Decide if you want:

• Full bookkeeping software (better if you're not a spreadsheet nerd), or
• Spreadsheets + an approved bridging tool.

Make sure whatever you choose is on HMRC's list of MTD-compatible software for Income Tax.

Step 3 -- Change your habits before HMRC makes you

• Start recording income and expenses weekly or monthly in your chosen system now -- not once a year.
• Start keeping all invoices and receipts in a way that ties into the software (photo capture, email forwarding, or at least a logical folder system).

Step 4 -- Talk to your accountant / bookkeeper

Ask them:

• When they think you will come under MTD;
• Whether they are going to do your quarterly submissions, or you are;
• What software they prefer to work with.

Step 5 -- Sign up early and test it

• Once HMRC opens full MTD ITSA sign-up for your band, join before the last minute.
• Aim to have at least one year of trading on your new system before your first mandatory MTD year -- that way any teething troubles are behind you.

6. Why this matters if you're in construction

Builders are already under heavy HMRC scrutiny for CIS and VAT, and MTD will tighten the loop on income tax as well.

Doing nothing means:

• A panicky scramble in 2026-27;
• More risk of errors and penalties;
• Potential cashflow shocks if you've been under-estimating your tax.

Getting ahead means:

• You're ready when the rules hit;
• You can see, month by month, whether you're actually making money;
• Your accountant has a fighting chance of keeping you on the right side of HMRC.

7. Common mistakes

• Assuming MTD doesn't apply to you -- if your gross self-employment income is over £50k, you're in from April 2026. Check your numbers.
• Waiting until the last minute to pick software -- learning new software while dealing with your first quarterly deadline is stressful and error-prone.
• Confusing gross income with profit -- the £50k/£30k thresholds are based on gross income (before expenses), not profit. A builder turning over £55k but only profiting £30k is still in scope.
• Thinking your accountant will handle everything -- they might do the submissions, but you still need to keep digital records and feed them data regularly, not once a year.
• Not separating business and personal money -- MTD makes clean records essential. If everything's mixed in one bank account, your quarterly updates will be a nightmare.

8. Who to contact

• HMRC -- Making Tax Digital -- overview, timelines and sign-up: gov.uk/government/collections/making-tax-digital (free)
• HMRC -- MTD for Income Tax -- detailed guidance for sole traders: gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax (free)
• HMRC -- MTD-compatible software list -- check your software is approved: gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax (free)
• HMRC VAT helpline -- 0300 200 3700 (free)
• HMRC self-employment helpline -- 0300 200 3310 (free)
• Your accountant -- to plan your MTD transition and agree who does what (paid)

9. Sources and legislation

• Finance (No. 2) Act 2017 -- legislative basis for Making Tax Digital. legislation.gov.uk/ukpga/2017/32
• The Income Tax (Digital Requirements) Regulations 2021 -- MTD ITSA detailed rules (as amended). legislation.gov.uk/uksi/2021/1076
• GOV.UK -- Making Tax Digital for Income Tax -- official guidance on thresholds, timelines and requirements. gov.uk/government/collections/making-tax-digital-for-income-tax
• GOV.UK -- Making Tax Digital for VAT -- current VAT MTD requirements. gov.uk/government/collections/making-tax-digital-for-vat

10. Related guides on this site

• 5.16 VAT for builders -- registration, rates and reverse charge
• 5.14 Self-assessment penalties
• 5.15 Record keeping
• 8.1 Sole trader vs limited company -- honest comparison
• 8.3 Business bank account -- why you need a separate one
• S9 Setting up as a sole trader -- step by step

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