5 Steps To Becoming A Tax-Savvy Tradesperson

It’s time to finally turn that side hustle into a career. You’ve got the skillset and there’s a gap in the market. The only thing stopping you is a hazy understanding of self-employment. After all, from here on out it’s down to you to stay compliant with HMRC. Any mistakes and you could find yourself on the wrong side of an investigation.

That’s why it pays to brush up on all things tax. To make it easier, we’ve written the following guide to becoming a tax-savvy tradesperson.

1. Register for Self Assessment

If you’re turning self-employed for the first time, then you need to register with HMRC. It involves filling out a short form online. You should do this following the end of the tax year. This will be the first April after you start to actively seek work. Getting this done early allows you to get ahead of the deadlines towards the end of the tax year.

That’s not the only reason to register as soon as possible though – you can’t access your Self Assessment account (where you submit your tax return) without your Unique Tax Reference (UTR), Government Gateway ID and activation code. HMRC posts these to you after receiving your registration form, meaning that it could take up to eight weeks before you can log in. What’s more, if you fail to register within 28 days of receiving your code, it expires.

If you leave your registration until the end of the year, you may end up filing your tax return late – causing you to receive a penalty from HMRC.

2. Digitalise your bookkeeping

After registration, you might be tempted to turn your back on HMRC’s online services. And you’d be joining thousands of people who prefer paper tax returns over a digital submission too. But there is a catch: you’ll have to file three months before everyone else. Paper returns are due on 31st October, but digital submissions are due on 31st January.

Also, you may only have a few years of paper returns before HMRC forces you to embrace the online submission anyway. Making Tax Digital (MTD) was launched in 2019 to move businesses to online filing (among other things). The idea was to prevent mistakes and make it easier for taxpayers to pay. As a result, come 2024, paper returns will be a thing of the past. HMRC will also require sole traders to submit their self-employed income and expenses quarterly from April 2024.

It’s for this reason that we suggest you get to grips with tax software or the HMRC portal ahead of time. It’ll give you a competitive edge over other tradespeople who’ve failed to prepare for the change and will allow you an extra three months to file your tax return.

3. Look out for tax savings by understanding your expenditure

Once you’ve familiarised yourself with the tax return process, start researching tax savings that are relevant to your trade. If you’re constantly on the road, for example, you have two options when claiming travel: you can either make a flat rate mileage claim, or claim on the business element of your fuel, insurance, service, road tax and repair costs. Claiming expenditure like this helps reduce your tax bill.

However, there are a number of expenses that you might not know you could claim. For example, any accountancy fees or marketing costs (such as flyers, websites, and radio and newspaper adverts) are also allowable expenditure. The same is true of any uniform or tools you purchase for work purposes.

It’s worth noting that if you wish to claim the full cost of these items, you must use them solely for work purposes. Say, for example, you wanted to buy a laptop for your accounting. If you also share it with your family for personal use, that wouldn’t be eligible for full relief and you would have to adjust for private use when claiming.

4. Keep all records

Whatever your purchase is, make sure that you hold on to all receipts, invoices and bank statements that relate to it. The same is true of any income you bring in. Fail to give HMRC evidence of income and expenditure if they were to launch an investigation into your tax return, and you could end up getting penalised.

There are three types of investigation:

• Full enquiry – HMRC review the entirety of your business records because they believe there is a significant risk of error in your tax
• Aspect enquiry – A review of inconsistencies found in a particular section of your records (this is the most common investigation type)
• Random check – A random review, usually as extensive as an aspect enquiry

HMRC will usually review around four to six years of your tax records. This means that all receipts, bank statements and invoices need to be kept in decent condition (not stuffed to the back of your wallet!).

5. Focus on generating business

It almost seems impossible, doesn’t it? To do all of the above and focus on generating business. If only there was a way to automatically monitor for tax savings, fill in a tax return based on the info you provide throughout the tax year, and store your relevant records. Enter GoSimpleTax…

GoSimpleTax alerts you to potential tax savings if it thinks you qualify for some. The full version of our software also allows you to upload PDF or JPEG copies of receipts and invoices so that they don’t suffer wear and tear. This way, you’re able to dedicate more time to earning and less time struggling to stay on top of your bookkeeping.

The best bit? GoSimpleTax is already MTD-compliant, so you won’t be expected to change the way you do your tax return when MTD for Income Tax gets rolled out. With our software, there’s nothing holding you back from throwing yourself into your work and growing your self-employed business.

Get started today

Follow these tips and, while all other sole traders spend their first year in business trying to get to grips with tax, you’ll have everything in place to streamline your processes.

Sign up for a freemium version of our tax return software and see how much time you could save.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.