Plumbing and electrical work are among the most in-demand trades in the UK. Whether you are a sole trader plumber, an electrician running a limited company, or a subcontractor working under CIS, the accounting has industry-specific rules that can cost you money if you get them wrong.
The two biggest areas to understand are the Construction Industry Scheme (CIS) and the VAT domestic reverse charge. Both affect how you invoice, what deductions are made from your payments, and how you file your tax returns.
Business Structure
| Structure | Best For | Key Features |
|---|---|---|
| Sole trader | Individual tradespeople working independently | Simple setup, Self Assessment, unlimited personal liability |
| Partnership | Two or more tradespeople sharing a business | Shared profits, each partner files Self Assessment |
| Limited company | Higher-earning tradespeople, those seeking limited liability | Corporation Tax, limited liability, more admin |
Most plumbers and electricians start as sole traders. If profits consistently exceed £50,000, a limited company may reduce your tax through a salary-and-dividend strategy. Limited liability also protects personal assets if something goes wrong on a job.
The Construction Industry Scheme (CIS)
If you work as a subcontractor for a contractor in the construction industry, or if you engage subcontractors yourself, the Construction Industry Scheme applies to you.
How CIS Works
- Contractors must register with HMRC for CIS
- Before paying a subcontractor, the contractor verifies the subcontractor with HMRC
- The contractor deducts tax from payments to the subcontractor (unless the subcontractor has gross payment status)
- The contractor pays the deductions to HMRC monthly
- The subcontractor claims credit for the deductions on their Self Assessment or Corporation Tax return
CIS Deduction Rates
| Status | Deduction Rate |
|---|---|
| Registered subcontractor | 20% |
| Unregistered subcontractor | 30% |
| Gross payment status | 0% (no deduction) |
Getting Gross Payment Status
To qualify for gross payment status (no CIS deductions), you must meet all of:
- Business test – your business primarily operates in the construction industry
- Turnover test – minimum turnover of £30,000 (sole trader) or £30,000 per director (limited company) in the 12 months before applying
- Compliance test – tax returns and payments up to date with HMRC
Gross payment status is highly beneficial because you receive the full payment and manage your own tax. Without it, 20% is withheld from every payment, which can create serious cash flow pressure.
What Work Falls Under CIS?
| CIS Applies | CIS Does Not Apply |
|---|---|
| Installing central heating systems | Delivering materials only |
| Rewiring a house | Manufacturing components offsite |
| Plumbing a new-build | Installing domestic appliances (usually) |
| Commercial electrical fit-out | Carpet fitting |
| Bathroom and kitchen installations | Professional services (architecture, surveying) |
If a plumber or electrician works on a construction project for a contractor, CIS applies. If they work directly for a homeowner (not a contractor), CIS does not apply to that job.
VAT and the Domestic Reverse Charge
VAT Registration
Plumbing and electrical services are standard-rated at 20%. You must register for VAT once your taxable turnover exceeds £90,000 in any rolling 12-month period.
Many sole trader plumbers and electricians work close to the threshold. Monitor your rolling 12-month turnover each month.
The Domestic Reverse Charge for Construction
Since March 2021, the VAT domestic reverse charge applies to construction services reported under CIS. Under the reverse charge:
- The subcontractor does not charge VAT to the contractor on qualifying construction services
- The contractor accounts for the VAT directly to HMRC (both output and input VAT)
- The invoice must state that the domestic reverse charge applies
| Scenario | VAT Treatment |
|---|---|
| Subcontractor to contractor (CIS applies) | Reverse charge – no VAT charged |
| Tradesperson to homeowner (direct) | Normal VAT charged at 20% |
| Tradesperson to non-construction business | Normal VAT charged at 20% |
| End user (contractor who does not pass on the supply) | Normal VAT charged at 20% |
The reverse charge prevents missing trader fraud in construction supply chains. It does not change the total VAT collected – it changes who accounts for it.
Impact on Cash Flow
The reverse charge has a significant cash flow impact on subcontractors. Previously, you charged VAT to the contractor and received it in your bank account (then paid it to HMRC on your VAT return). Now, you do not receive that VAT cash. If your input VAT exceeds your output VAT, you may be in a repayment position each quarter.
Allowable Expenses
Tools and Equipment
| Expense | Treatment |
|---|---|
| Hand tools (spanners, screwdrivers, pliers, multimeters) | Deductible in full as revenue expenditure |
| Power tools (drills, saws, pipe threaders) | Deductible via Annual Investment Allowance (AIA) |
| Testing equipment (electrical testers, gas analysers) | Deductible via AIA |
| Tool replacement and repair | Deductible in full |
| Tool insurance | Deductible |
| PPE (safety boots, hard hats, goggles, gloves) | Deductible in full |
The Annual Investment Allowance of £1,000,000 means virtually any equipment purchase is deductible in full in the year of purchase.
Van and Vehicle Costs
For most plumbers and electricians, the van is a core business asset:
Option 1: Mileage allowance (simple, no receipts needed for running costs)
| Vehicle | First 10,000 Miles | Over 10,000 Miles |
|---|---|---|
| Car/van | 55p | 25p |
Option 2: Actual costs (requires detailed records)
| Cost | Deductible (Business %) |
|---|---|
| Fuel | Business proportion |
| Insurance | Business proportion |
| MOT and servicing | Business proportion |
| Road tax | Business proportion |
| Finance charges (lease or HP interest) | Business proportion |
| Parking | Business journeys only |
If the van is used 100% for business (no private use), claim 100% of actual costs. If there is any private use, claim only the business proportion.
Materials and Supplies
- Materials purchased for jobs (pipes, fittings, cables, switches, sockets) – deductible when used
- Stock held at year end – included in the stock valuation on the balance sheet, not deducted until used or sold
- Waste disposal costs – deductible
Other Common Expenses
- Professional qualifications – Gas Safe registration, NICEIC or NAPIT membership, Part P registration
- Insurance – public liability, professional indemnity, employers’ liability, tool cover, van insurance
- Training and CPD – courses, certifications, electrical regulation updates (18th Edition)
- Accountancy fees – deductible
- Phone – business proportion of mobile phone costs
- Workwear – branded or protective clothing (not ordinary clothing)
- Advertising – website, Checkatrade, MyBuilder, Rated People, local advertising
Pricing Your Work
| Cost Element | Typical Percentage |
|---|---|
| Materials | 20-35% |
| Labour (your time or employee wages) | 35-45% |
| Van and overheads | 10-15% |
| Insurance and compliance | 3-5% |
| Profit | 15-25% |
Pricing Methods
- Day rate – common for larger jobs and subcontract work. Typical rates: £200-£350/day depending on location and specialisation
- Fixed price – quoted for specific jobs (bathroom installation, rewire). Requires accurate estimation of materials and time
- Hourly rate – common for smaller jobs and call-outs. Typical rates: £40-£80/hour plus materials
Always factor in travel time, quoting time (not all quotes convert), and non-chargeable administration.
Employing Staff or Subcontractors
As your business grows, you may take on employees or use subcontractors:
Employees
- Register as an employer with HMRC
- Run monthly payroll (PAYE, NIC, pension auto-enrolment)
- Provide employers’ liability insurance
- Budget for employer NIC (15%) and pension contributions (3%) on top of gross wages
Subcontractors
- If you are the contractor engaging subcontractors, register for CIS
- Verify each subcontractor with HMRC before first payment
- Make CIS deductions at 20% (or 30% if unregistered) unless they have gross payment status
- File monthly CIS returns with HMRC
Record Keeping
| Record | Retention Period |
|---|---|
| Invoices (issued and received) | 6 years |
| Bank statements | 6 years |
| Receipts for expenses | 6 years |
| CIS payment and deduction records | 6 years |
| VAT records | 6 years |
| Mileage log | 6 years |
| Contracts and quotes | 6 years |
Digital Records
Making Tax Digital requires digital record keeping for VAT purposes. Use accounting software to maintain your records digitally, link your bank feeds, and file VAT returns electronically.
Common Accounting Mistakes
- Not registering for CIS – if you use subcontractors, you must register as a contractor and make deductions
- Ignoring the reverse charge – invoicing VAT when you should be applying the reverse charge causes problems for both you and your customer
- Not claiming CIS deductions – if you are a subcontractor, ensure you claim credit for all CIS deductions on your tax return
- Mixing personal and business finances – a separate business bank account is essential
- Not tracking materials by job – for fixed-price work, knowing your actual material costs per job is vital for pricing accuracy
- Overlooking van costs – the van is typically the second-largest expense after labour; claim everything you are entitled to
- Late VAT registration – a busy tradesperson can cross £90,000 without realising; check monthly