The money sums in a trade business

Self-employed builders, plumbers, electricians and decorators spend most of their day on the work itself. The figures still need doing, from the price on a quote to the tax at the end of the year. This page explains the main sums a UK tradesperson works out, using the rules HM Revenue and Customs (HMRC) publishes.

VAT on a price

The standard rate of VAT is 20%. A reduced rate of 5% applies to some goods and services, such as home energy. Some things are zero-rated, and some are exempt.

A business must register for VAT when its taxable turnover for the last 12 months goes over £90,000. It must also register if it expects to go over £90,000 in the next 30 days. Registration is due within 30 days of the end of the month in which the turnover went over. A business under the threshold can choose to register.

The reverse charge on building work

Between VAT-registered businesses in the Construction Industry Scheme, most building work uses the VAT domestic reverse charge. The supplier invoices without VAT, marked for the customer to account to HMRC, and the customer pays that VAT to HMRC instead. It covers work such as building, repairs, decorating, and installing heating, lighting, water and drainage.

Some work is left out when supplied on its own. That includes installing security systems, blinds and shutters, and the professional work of architects and surveyors. Work for a private householder is not covered, because the customer will not be VAT registered. Where the reverse charge does not apply, the normal VAT rules do.

CIS deductions

Under the Construction Industry Scheme (CIS), a contractor takes money from a subcontractor's payments and passes it to HMRC. If you are registered, the contractor deducts 20%. If you are not registered, the contractor deducts 30%. The deductions count as advance payments towards your tax and National Insurance.

You can apply for gross payment status, so that nothing is deducted. Some work is outside CIS altogether, including carpet fitting, delivering materials and scaffolding hire with no labour.

Mileage for your van

Sole traders can use flat rates for vehicle costs instead of adding up fuel, insurance and repairs. For the 2026 to 2027 tax year, the rate for cars and goods vehicles such as vans is 55p a mile for the first 10,000 business miles. After that it is 25p a mile. Before 6 April 2026 the first rate was 45p.

You cannot use the flat rate for a vehicle you have already claimed capital allowances on. Once you use it for a vehicle, you keep using it for as long as that vehicle is in the business.

Dates for the year

For the tax year that ended on 5 April 2026, you must send an online Self Assessment return and pay the tax you owe by 31 January 2027. HMRC's deadline for a paper return for that year is 31 October 2026. A paper return that arrives after that date gets a late filing penalty. If you make payments on account, the second one is due by 31 July.

Making Tax Digital for Income Tax means reporting self-employment income through compatible software. It started on 6 April 2026 for sole traders with qualifying income over £50,000 in 2024 to 2025. It reaches £30,000 from April 2027 and £20,000 from April 2028. Keep your records for at least five years after the 31 January deadline for that year.

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