A Tradesperson’s Guide To Tax

When it comes to paying tax as a tradesman, it’s always a good idea to know your tax bill ahead of time. Being able to work out how much Income Tax you owe before 31st January means that you won’t run into any nasty surprises and can budget more effectively.

But that isn’t the only benefit. You’ll also be able to:

• More easily hit your tax return deadlines
• Review any business expenses you may have missed
• Increase your take-home pay by lowering your tax bill

To enable you to file early and cut down on your accountancy costs this tax year, we’ve provided the below guide on how to pay tax as a self-employed tradesman.

REGISTER AS A SOLE TRADER

To let HMRC know that you’re self-employed and need to pay Income Tax, you first need to register for Self Assessment. Fail to complete this process in a timely manner, and you run the risk of a £100 fine. You must register by 5th October following the end of the tax year in which you started your business.

Once you’re registered, you’ll need to fill out and submit an annual tax return (due on 31st January) that shows HMRC how much you’ve earned and determines the amount of tax due.

WHAT TAX DOES A TRADESPERSON NEED TO PAY?

As with any other sole trader, tradespeople are expected to pay Income Tax. This is the tax on their taxable income and it only applies if you earn over the Personal Allowance.

You’ll also have to pay Class 2 National Insurance if your self-employed profits exceed £6,514 (2021/22) a year, or Class 4 National Insurance if they exceed £9,568.

See the National Insurance bands for 2021/22 and 2022/23 below:

Depending on how much you earn, HMRC will then bracket you into one of the following tax bands:

Need to know!  These tax bands are for the 2021/22 and 2022/23 tax years.

If you tip into a higher rate, don’t panic. There is a way to compliantly reduce your taxable income so that you can lower your tax bill: claim expenditure as business expenses.

RECORD ALL YOUR INCOME AND EXPENDITURE

In order to submit an accurate tax return and reduce your taxable income, you first need to keep everything related to your self-employment. Invoices, bank statements and receipts all need to be kept.

Not only does this mean that you have all the information you need to submit the right figures, but you can also avoid being penalised. Why? Because HMRC can request up to six years of financial records should they launch an investigation. If any information is missing, you could be fined – in some cases an amount up to 100% of your tax bill.

CLAIM YOUR BUSINESS EXPENSES

There is another benefit to recording your expenditure though. By making a note of every cost you’ve incurred during the tax year, you will not miss any expenses, which is often the case if you leave this until the end of the year. These expenses may be used to reduce your tax liability and help boost your take-home pay.

These costs aren’t limited to your toolbox either. Everything from stationery to your logo’d uniform may be claimed on. Even the cost of financial services or solicitors’ fees are eligible.

WHAT BUSINESS EXPENSES CAN TRADESMEN CLAIM?

Sole traders are allowed to claim on a range of business purchases, provided the items are used entirely for business purposes. This includes the likes of:

Travel – Whether you use public transport or drive your own vehicle, the cost of journeys you make between clients can be claimed back on.

Marketing – If you’re hoping to drum up some new business, marketing exercises like flyers or advertising can be claimed back on.

Training – Any courses to refresh your existing skills set can also be considered business expenses.

FILE YOUR TAXES ON TIME

Once you’ve registered, reviewed your income and expenditure over the tax year, and claimed all your allowable business expenses, it’s time to file your tax return.

Ideally, you should submit it way before the 31st January deadline. January is when the bulk of sole traders file. As a result, HMRC is much harder to reach if you need support or guidance.

Leaving it to the last minute also means that you may rush your tax return and make mistakes. For this reason, we encourage all our users to start completing their return as soon as the previous tax year ends. This ensures they have all the relevant information to hand when they submit and avoid missed deadlines.

HOW GOSIMPLETAX CAN HELP

With the help of GoSimpleTax, you can save yourself the time, stress and money usually associated with the tax return.

Our tax software enables you to input your income and expenditure in real-time and see your up-to-date tax bill all year round. We even alert you when your expenditure could potentially qualify for tax relief.

Sign up for a freemium version of our tax return software to explore some of our features and enter a few details. When you’re ready to submit your completed tax return directly to HMRC, simply upgrade to a full account.

Our 5 steps to becoming a tax-savvy tradesperson article may be of interest

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.