VAT, CIS & MTD Explained: A No-Jargon Guide for UK Trades
Plain English walk-through of VAT, CIS, and Making Tax Digital — the three UK tax acronyms most likely to ruin your weekend. Includes the dates that actually matter.
Three letters that turn UK tradespeople into Sunday-evening Google searchers: VAT, CIS, MTD. Each one has its own rules, its own deadlines, and its own ways of going wrong. This guide explains all three in plain English — what they are, when they apply, and what happens if you ignore them.
VAT: the basics
What it is:Value Added Tax, charged at 20% (standard rate), 5% (reduced rate — some energy-saving work), 0% (zero-rated), or exempt. You charge it to your customer and hand most of it to HMRC.
When you have to register
- Your taxable turnover passes £90,000 in any rolling 12-month period (2026 threshold)
- You expect to pass £90k in the next 30 days
- You take over a VAT-registered business as a going concern
The reverse charge for construction
Since March 2021, construction services between VAT-registered contractors fall under the domestic reverse charge. You (the supplier) don’t charge VAT — the customer accounts for it themselves. This applies to most construction services where both parties are VAT-registered and CIS-registered.
CIS: the contractor scheme
What it is:The Construction Industry Scheme is a tax deduction system specific to UK construction. If you’re paid as a subcontractor by a contractor, the contractor must deduct tax from your payment and pay it directly to HMRC.
Deduction rates
- 20%if you’re registered as a subcontractor with HMRC
- 30%if you’re not registered
- 0% (gross payment status) for established businesses meeting turnover and compliance tests
The deduction is treated as an advance against your annual self-assessment. You reclaim any over-deduction as a tax refund. Always keep the contractor’s monthly CIS statement — you need it to prove what was deducted.
MTD: Making Tax Digital
What it is:HMRC’s programme to digitise UK tax. Three rules:
- Keep your records in MTD-compatible software
- Submit your VAT return through that software (not the HMRC web form)
- Send quarterly updates for income tax (from April 2026)
Who has to use MTD now
- Already required: all VAT-registered businesses (since April 2022)
- From April 2026: sole traders and landlords with qualifying income over £50,000
- From April 2027: threshold drops to £30,000
What you actually have to do
Stop typing numbers into the HMRC website. Store invoices and expenses in software like Love Invoicing. Submit returns through that software. There is no legal “paper option” for MTD-mandated taxpayers — the digital chain is required.
The deadlines that actually matter
- VAT return: 1 month + 7 days after quarter end (e.g., quarter ending 31 March = filing deadline 7 May)
- CIS monthly return: 19th of the month following the deduction (paper) / 22nd (electronic)
- Self-assessment: 31 January following the tax year (online)
- MTD ITSA quarterly updates: 5 August, 5 November, 5 February, 5 May (from 2026 onwards)
Common questions
Do I need to register for VAT as a sole trader?
Only when your taxable turnover crosses £90,000 in any rolling 12-month period (2026 threshold). Below that, registration is voluntary. If most of your customers are VAT-registered businesses, voluntary registration can be net positive because you can reclaim input VAT.
What is the CIS (Construction Industry Scheme)?
CIS is HMRC's tax deduction scheme for the UK construction industry. Contractors deduct 20% (registered subcontractors) or 30% (unregistered) from a subcontractor's payment and pass it directly to HMRC as advance tax. As a subcontractor, you reclaim it on your annual self-assessment.
Do I have to use Making Tax Digital (MTD) software?
Yes — if you're VAT-registered (since April 2022) or you're a sole trader / landlord with income over £50,000 (from April 2026, this drops to £30,000 in April 2027). MTD requires you to keep digital records and file VAT/income tax updates through compatible software.
Can I claim VAT back on tools and materials?
If you're VAT-registered: yes, on anything bought wholly for business use. Keep the VAT receipt — HMRC rejects bank statements as evidence. Mixed-use items (e.g., a van also used personally) need apportioning.
What's the penalty for filing VAT late?
Under the new points-based system (from January 2023): one point per late filing. Hit the threshold (4 points for quarterly filers) and you get a £200 penalty, plus £200 for every subsequent late filing until you reset your points. Late payment also accrues interest at the Bank of England base rate + 2.5%.
Does Love Invoicing handle VAT and CIS?
Yes. Love Invoicing's Solo and Crew plans both handle UK VAT (20%, 5%, 0%, exempt, and reverse charge) and CIS deductions automatically. MTD-compliant submissions are on the way for early 2026.
The shortcut
Love Invoicing handles VAT and CIS deductions automatically. You tick a box on the customer profile, pick a tax category on the line item, and the maths happens. MTD-compliant filing is on the roadmap for early 2026. See all features or jump to pricing.
Related: How to write an invoice that gets paid same-day · Free quote templates for UK trades.
Disclaimer: This guide is general information, not tax advice. Always consult a qualified accountant for your specific situation.