Tax is one of those topics that makes a lot of tradespeople anxious. It doesn't need to be. If you're operating as a sole trader in the UK, the basics are straightforward — but you do need to stay on top of them, or HMRC will get expensive.

This guide covers what you need to know, without the jargon.

Disclaimer: This article is for general guidance only. For advice specific to your situation, speak to a qualified accountant or tax adviser.

Registering as Self-Employed

If you're working for yourself — running your own plumbing, electrical, building, or other trade business — you need to register as self-employed with HMRC. You should do this as soon as you start trading.

You can register on GOV.UK. It's free and takes about 10 minutes online.

Once registered, HMRC will set you up for Self Assessment, which is how you file and pay your tax each year.

Don't delay registering. There are penalties for late registration, and HMRC has significant powers to pursue people who have been trading without registering.

Self Assessment: The Annual Tax Return

Every year, you'll need to complete a Self Assessment tax return. The UK tax year runs from 6 April to 5 April. Your return for the year ending 5 April 2026 needs to be filed online by 31 January 2027.

The return covers:

  • Your total income from self-employment
  • Allowable business expenses (more on these below)
  • Any other income (employment, rental income, etc.)
  • Your tax and National Insurance bill

Filing online gives you until 31 January; paper returns have an earlier deadline of 31 October, so most people file online.

Income Tax Rates (2025/26)

Income tax is charged on your taxable profit (revenue minus allowable expenses) above the Personal Allowance.

Band Taxable Income Rate
Personal Allowance Up to £12,570 0%
Basic Rate £12,571 – £50,270 20%
Higher Rate £50,271 – £125,140 40%
Additional Rate Over £125,140 45%

Most self-employed tradespeople fall in the Basic Rate band. If your profit pushes above £50,270, you'll pay 40% on everything above that threshold.

National Insurance

As a sole trader, you pay two types of National Insurance:

  • Class 2 NI: £3.45 per week (if profits are above £12,570). Now collected via Self Assessment.
  • Class 4 NI: 6% on profits between £12,570 and £50,270; 2% above that.

National Insurance contributions count towards your State Pension entitlement, so it's important to keep these up to date.

Allowable Business Expenses

This is where sole traders often leave money on the table. Allowable expenses reduce your taxable profit, which means you pay less tax.

Common allowable expenses for tradespeople include:

  • Tools and equipment — power tools, hand tools, safety equipment
  • Van or vehicle costs — fuel, insurance, MOT, repairs (or the HMRC mileage rate: 45p/mile for the first 10,000 miles, 25p/mile after that)
  • Work clothing — protective gear, branded workwear (not everyday clothes)
  • Materials — anything you buy to complete a job
  • Phone and internet — the business proportion of your bills
  • Insurance — public liability, tools insurance, van insurance
  • Accountancy fees — the cost of using an accountant is itself tax-deductible
  • Training and trade memberships — Gas Safe registration, NICEIC, NAPIT, trade association fees
  • Advertising — website costs, Google Ads, directory listings
  • Office costs — a proportion of home costs if you work from home

Keep receipts for everything. HMRC may ask for them.

Payments on Account

Once your tax bill exceeds £1,000, HMRC puts you on a "payments on account" system. This means you pay:

  • 50% of your estimated bill by 31 January
  • 50% by 31 July
  • Any remaining balance by 31 January the following year

This catches many first-time self-employed tradespeople off guard in their second year — they suddenly face a bill that's 150% of what they expected. Budget for this from the start.

Setting Money Aside

The most important practical habit: set aside 25–30% of everything you earn into a separate savings account as you go. Don't wait until January to figure out if you have enough.

If you're in the basic rate band, your combined income tax and National Insurance will typically be around 25–27% of your profit above the Personal Allowance. Setting aside 30% is conservative and means you'll rarely be short.

When to Get an Accountant

A good accountant typically costs £300–600 per year for a sole trader and will usually save you more than that in legitimate tax reductions. They also take the admin burden off you entirely.

It's worth getting one once your annual turnover exceeds around £30,000, or sooner if your finances are complicated (CIS, VAT registration, employing staff).

CIS: The Construction Industry Scheme

If you work as a subcontractor for main contractors, you're likely subject to CIS (Construction Industry Scheme). Under CIS, the contractor deducts 20% (or 30% if you're unregistered) from your payments before they reach you. You claim this back through Self Assessment.

Register for CIS via HMRC to ensure you're on the lower 20% rate rather than 30%.

VAT: When Does It Apply?

You must register for VAT once your turnover exceeds £90,000 in a 12-month rolling period. At that point, you'll charge VAT on your work (currently 20% standard rate for most trade work) and submit quarterly VAT returns.

Voluntary registration below the threshold is possible and can be beneficial if your customers are VAT-registered businesses — but take advice before doing this.

Tax doesn't have to be something you dread. Get registered, keep records, set money aside, and file on time. That handles 90% of it.

For the rest, a good accountant is worth every penny.