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A guide to self-assessment tax for tradespeople

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It’s nobody’s favourite part of the job, but if you don’t get your tax right it can cause a big headache for you and your business...

The basics of self-assessment tax

Unlike someone who’s employed, whose tax is sorted out by their employer, when you’re self-employed, paying your tax is up to you.

As someone who’s self-employed, you need to pay your tax through the Government’s self-assessment system.

This means instead of tax being deducted automatically from your wages, it’s up to you to submit a tax return to HMRC showing what you earned and what you spent on your business and then make sure you pay your tax.

For most tradespeople, this will be the case, but if you’re not sure whether you should be paying tax via self-assessment or not, use this tool on the Government website.

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How does self-assessment work?

  • Register - First you’ll need to register for self-assessment. You do this on the Government website and then you’ll get sent a letter with your Unique Taxpayer Reference (UTR). You need this to log in to your HMRC account and complete your tax return.
  • Fill in your details - To fill in your tax return, you’ll need to submit information including your earnings for that tax year and any expenses are deducted from that. You only pay tax on what’s left. Put simply, that means if your turnover is £40,000 and you claim £10,000 in allowable expenses, you’ll only pay tax on the remaining £30,000 - known as your taxable profit.
  • Meet the deadline - The deadline to submit online tax returns and pay any tax you owe is usually January 31st so it’s worth making sure you do everything in plenty of time to make sure you’re not late. Sometimes you will be asked to make a ‘payment on account’ so make sure you double check what dates payments are due.
  • Consider getting help - If you can’t face doing it yourself, you can get an accountant to sort your tax out for you. Just remember they’ll charge for their services - around £150 to £250 for one-off help with preparing your filings, or you can retain their services year round for regular help.

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What expenses can I include for self-assessment?

Basically, anything you spent on running your business is an expense. This includes:

  • Materials
  • Tools and equipment
  • Fuel and maintenance and repairs for your work van (if it’s used only for work)
  • Clothing
  • Insurance
  • Office costs
  • Advertising your business, whether that’s ads, your website or business card

To double check what you can and can’t claim as expenses, check out the HMRC site here.

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How to make self-assessment as easy for yourself as possible

  • Record everything - Keep records of your earnings and expenses throughout the tax year. For earnings this will probably be invoices and bank statements, and for expenses you’ll need bills, receipts and statements from trade accounts. A business bank account can help you keep things in one place.
  • Get help - Invest in a bookkeeping app or accounting software - or even an accountant. There are plenty of apps or software out there nowadays that combine your invoices with all your expenses and can even link to your HMRC account. For some people, paying for an accountant is a more time and cost-effective way to sort out their tax return. The choice is yours.
  • Get organised - Stay on top of things every month, and make sure you give yourself plenty of time. You will incur penalty charges if your tax return is late or if you pay your tax bill late, as well as being charged interest on late payments. So make sure you do everything on time.

Tax might be boring, but getting it right is one of the most important things when it comes to running your own business - so it’s worth taking the time to understand.

Accounting and tax