What accounting do tradespeople need to sort out? It’s one of those questions that seems simple but pulls in a few different directions depending on how you work, whether you’re in construction, and where you are with your earnings.

The basics: Self Assessment and what you owe HMRC

If you’re a self-employed tradesperson, you need to file a Self Assessment tax return every year. This tells HMRC how much you’ve earned, what your expenses were, and what tax you owe. The deadline for filing online is 31 January following the end of the tax year.

You’ll also pay National Insurance contributions on your profits. Class 4 NICs apply to most self-employed people above a certain profit threshold, and Class 2 NICs were folded into Class 4 from April 2024. Your tax return captures all of this in one go, which is why getting your income and expenses right matters.

CIS: what it means if you work in construction

The Construction Industry Scheme applies to contractors and subcontractors in construction. If you’re a subcontractor, the contractor you work for deducts tax from your payments before you see them. The standard deduction rate is 20%, which goes to HMRC against your tax bill.

You can apply for gross payment status, which means you receive your full payment and deal with the tax yourself at year end. Cash flow is the main reason people apply for it, since having 20% taken off every invoice adds up quickly. According to HMRC guidance on CIS, cost of materials is only excluded from CIS deductions if you directly incurred that cost yourself, so it’s worth being clear on what your deductions should actually cover.

VAT: when you need to register and how the Flat Rate Scheme works

Once your VAT-taxable turnover hits £90,000 in any rolling 12-month period, you have to register for VAT. You then charge VAT on your invoices, collect it, and pay the difference between what you charged and what you spent on VAT to HMRC each quarter.

One option worth knowing about is the VAT Flat Rate Scheme. Instead of tracking every penny of VAT in and out, you pay a fixed percentage of your gross turnover. For general building or construction services, that flat rate is 9.5%. For labour-only construction work, it rises to 14.5%. New VAT-registered businesses also get a 1% discount in their first year, which is a small but useful cash flow benefit.

Bookkeeping: what records you actually need to keep

HMRC requires you to keep records of all your income and expenses for at least five years after the Self Assessment deadline. That means invoices, receipts, bank statements and mileage logs if you’re claiming vehicle costs. It doesn’t have to be complicated, but it does have to be there if HMRC ever asks.

The most practical approach I see working for tradespeople is logging things weekly rather than leaving it until January. Ten or fifteen minutes on a Friday to photograph receipts and match them to bank transactions is far easier than trying to reconstruct a year from memory. Cloud accounting tools like QuickBooks or FreeAgent can do a lot of the heavy lifting if you set them up properly from the start.