Tomorrow is a deadline for something you almost certainly don’t have to do. A good number of the people you pay do.
7 August is the first deadline under Making Tax Digital for Income Tax — HMRC’s scheme replacing the single annual tax return for the self-employed with reporting four times a year, done through software. It started in April. HMRC put more than 864,000 sole traders and landlords in this first wave. A fair few of them are on your sites this week.
You’re a limited company. None of it is your filing. It is still going to land on your office manager’s desk.
What Making Tax Digital changes for subcontractors
Until April, a self-employed subcontractor did his books once a year, usually in January, usually in a hurry. Now he has to keep his records digitally and send HMRC a short summary of income and expenses every three months. HMRC calls it a quarterly update. It isn’t a tax return — the return, and the bill, still arrive on 31 January as they always did. It’s a summary of what came in and what went out, submitted through approved software.
The first period ran from 6 April to 5 July. The deadline for sending it is tomorrow. After that it’s 7 November, then 7 February, then 7 May, and on like that for good.
Who’s caught depends on a figure HMRC calls qualifying income, and this is the bit that catches construction out. Qualifying income is gross turnover — before expenses, and before any tax taken off at source. Above £50,000 and you’re in from this April. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028, at which point very few of the self-employed people you use will be outside it.
Why subcontractors need gross figures from you
Start with what your subbie can actually see. When you pay a self-employed man for construction work you don’t hand over the full amount. Under the Construction Industry Scheme — CIS, the rules HMRC has run in one form or another for decades to stop tax going astray in the trades — you take twenty per cent off the labour part of his invoice and send it to HMRC, or thirty per cent if he isn’t registered with them. He gets the rest. The deduction counts towards his eventual tax bill.
So his bank statement shows the net. Eighty pence in the pound, on a good day. If he reports that as his income he understates his turnover by a fifth, and a quarterly update built on the wrong number is a correction later and a phone call to you in the meantime.
The right numbers — what he grossed, what came off for materials, what was deducted — exist in exactly one document. The payment and deduction statement you are legally required to give him, within 14 days of the end of each tax month. Tax months end on the 5th, so that’s the 19th.
Some firms I audit produce those on the nail every month. More produce them when asked.
And “when asked” is now four times a year instead of one. There’s a second turn of the screw, too: since July 2024 a subcontractor can’t ring HMRC for copies of statements he’s lost. He has to write in, and before HMRC will even look at it he has to show he asked his contractor and got nowhere. You have been made the first port of call by design.
One honest note, because it cuts the other way. HMRC isn’t issuing penalty points for late quarterly updates during this first year. Tomorrow’s deadline has no teeth. From the second year it’s points-based — a point for each missed deadline, a £200 charge once four have stacked up. So the pressure this week is mild, and next August’s isn’t.
The question worth asking this week
Pick a subcontractor. Any of them. Can someone in your office put his payment and deduction statements for April, May, June and July into his hands, correct, in the next ten minutes?
In most firms I look at the answer is no, and the reason is always the same shape. The gross figure sits on an application for payment in a folder. The materials split was agreed on the phone and written on nothing. The deduction was worked out inside the accounts package, on a screen nobody outside the finance office can reach. The statement itself gets typed up at month end, when somebody has time — and month end has a habit of not having time.
Nothing is missing, exactly. It’s that no one person and no one system holds the whole line.
What a fix looks like
Modest, as usual. Not a platform. Three things.
The statement should be a by-product of paying, not a separate job. The moment the payment run is approved, the statement exists — gross, materials, deduction, net — and it goes out. Nobody types anything twice, and the 19th stops being a date anyone has to remember.
Subcontractors should be able to get their own copies without ringing you. A page they log into, or a link that reissues the last twelve months on request. Your office fields that call more often than anyone bothers to count. In November it will field more.
And the materials split should be captured when it’s agreed, not reconstructed afterwards. That single line — how much of the invoice is labour and how much is materials — is what the whole deduction rests on, and in a lot of firms it lives in somebody’s memory of a conversation in a van.
None of that is a big build. All of it has to sit on the way your firm actually pays people, which is why the CIS module in a national package never quite fits.
Where this doesn’t apply
If your people are on the books and you use barely any self-employed labour, this isn’t your problem — leave it. If your accounts system already emails statements the day the payment run clears and your subbies never chase, you’ve solved it; go and fix something else. And if you’re small enough that the same person raises the payment and sends the statement in one sitting, the joins are already there. You’ll feel this only when you grow past that.
It’s the firms in between — twenty or thirty subbies, statements typed by hand, an office manager quietly acting as the join between three systems — who are about to discover how much more often that question gets asked. Get in touch.
