Nobody becomes a plumber or an electrician because they love tax paperwork. But ignore it and HMRC will eventually come knocking — and they're not known for their sense of humour. The good news is that the tax side of running a trade business isn't complicated once you understand the basics.
Here's what you actually need to know. Not the stuff your accountant charges you to explain in unnecessarily complex terms — the plain English version.
Register With HMRC Straight Away
If you're earning money as a self-employed tradesperson, you need to register with HMRC. You've got until the 5th of October following the tax year you started working. Miss this deadline and you'll get a penalty, which is a pointless way to start your business.
Registration takes about ten minutes online. You'll get a Unique Taxpayer Reference (UTR) number in the post within a couple of weeks. Keep it somewhere safe — you'll need it every time you file a tax return or speak to HMRC.
Even if you're only doing a few jobs on the side while employed, if you're earning more than £1,000 a year from self-employment, you need to register and declare it. HMRC has access to bank records and can spot unexplained deposits. It's not worth the risk.
Keep Every Receipt
This is the boring bit, and it's also the bit that saves you the most money. Every legitimate business expense reduces your taxable profit, which means you pay less tax. But you can only claim expenses you can prove.
Get a receipt for everything: fuel, materials, tools, workwear, van servicing, insurance, phone bill, parking, even a coffee and a sandwich from the petrol station if you're on the road between jobs. Individual receipts might only be for a few pounds, but they add up to thousands over a year.
The easiest method: take a photo of every receipt on your phone the moment you get it. Most accounting apps — FreeAgent, QuickBooks, Xero — let you snap and categorise receipts on the go. The paper receipt will fade and crumble. The photo stays forever.
Allowable Expenses You Might Be Missing
Most tradespeople claim for materials and fuel but miss dozens of other legitimate expenses. Here's a proper list:
Vehicle costs: Fuel, servicing, MOT, repairs, tyres, breakdown cover, parking, congestion charges. You can claim actual costs if you use the van exclusively for work, or use HMRC's flat rate mileage allowance (45p per mile for the first 10,000 miles, then 25p). Work out which method gives you a bigger deduction and use that one consistently.
Tools and equipment: Everything from power tools to tape measures. Items under £1,000 can usually be deducted in full in the year you buy them. More expensive equipment gets claimed through capital allowances over time.
Insurance: Public liability, professional indemnity, van insurance, tool insurance. All deductible.
Phone and internet: If you use your personal phone for business, you can claim a percentage. A dedicated work phone is 100% deductible. Same for your home internet if you use it for invoicing, emails, or ordering materials.
Workwear: Safety boots, hi-vis, overalls, branded clothing. Regular clothes you wear on site don't count — the clothing has to be specifically for work or carry your business branding.
Professional subscriptions: Gas Safe registration, NICEIC, trade union membership, professional body fees. All deductible.
Training: Courses that update or maintain your existing skills are deductible. Courses for entirely new qualifications are trickier — ask your accountant.
Advertising: Van lettering, business cards, website hosting, Google Ads, Checkatrade subscription. Anything you spend to promote your business counts.
Accountancy fees: Yes, your accountant's fee is itself a tax-deductible expense.
The 30% Rule
Here's a simple habit that prevents the January panic. Every time money comes into your account, transfer 30% of it into a separate savings account. Don't touch it. That's your tax money.
For most sole traders, the actual tax rate works out somewhere between 20% and 30% depending on your income level. Setting aside 30% means you'll always have enough to cover your tax bill, and if there's anything left over after paying, it's a bonus.
The tradespeople who get into trouble are the ones who spend everything that comes in and then face a £5,000 tax bill in January with nothing in the bank. The 30% habit makes this impossible.
Payment on Account
This catches a lot of people off guard in their second year. HMRC doesn't just ask you to pay last year's tax bill — they also ask for a payment on account towards next year's estimated bill. So your January payment can be up to 150% of what you were expecting.
Payment on account works like this: you pay half of next year's estimated tax in January, and the other half in July. It's based on last year's bill, so if your income has increased, you might still owe more in January the following year.
Knowing this exists is half the battle. Budget for it from the start and it's manageable. Being surprised by it in January when you're already staring at a tax bill is not.
Making Tax Digital
If you're earning over £50,000 from self-employment (dropping to £30,000 from April 2027), you'll need to comply with Making Tax Digital for Income Tax. This means keeping digital records and submitting quarterly updates to HMRC instead of one annual return.
In practice, this means using accounting software rather than a spreadsheet or shoebox of receipts. If you're not already using something like FreeAgent, QuickBooks, or Xero, now is the time to start — even if the threshold doesn't apply to you yet, it will eventually.
Common Mistakes That Trigger Investigations
HMRC uses computer algorithms to flag tax returns that look unusual. Here are the things that raise red flags:
Declaring unusually low income for your trade and area. If the average plumber in your region declares £35,000 and you're declaring £18,000, expect questions — especially if you're running a van, paying insurance, and apparently living on fresh air.
Large round numbers for expenses. "Materials: £10,000" looks like a guess. "Materials: £9,847.63" looks like it came from actual receipts. Keep proper records and your numbers will naturally be precise.
Wildly different figures year to year with no obvious explanation. If your income halves overnight, have a reason ready — lost a big contract, took time off for illness, relocated to a new area.
Not declaring cash income. Yes, HMRC knows that tradespeople get paid in cash sometimes. No, they don't assume you're declaring all of it. And they can investigate bank deposits that don't match declared income. It's not worth the risk.
Get your tax sorted early in the year, not in a panic on the 30th of January. Tools like Gaffer log every job and invoice automatically, which makes pulling together your figures at year-end dramatically less painful. But even a simple spreadsheet updated weekly beats a frantic search through your text messages trying to remember who paid you what six months ago.