Accounting for Tradespeople

If you work as a plumber, electrician, carpenter, painter, roofer or any other trade in the UK, your accounting needs are different from a typical office-based business. You are likely dealing with cash payments, vehicle costs, tool purchases, working on construction sites (which brings CIS into play) and managing materials costs alongside your labour charges.

The good news is that the accounting itself is not complicated once you have a system. The tricky part is being consistent about using it.

Business structure

Most tradespeople start as sole traders because it is the simplest route. You register with HMRC for Self Assessment, keep records of your income and expenses, and file a tax return each year.

As your profits grow, a limited company may become more tax-efficient:

The crossover point depends on your personal circumstances, other income and how much you need to draw from the business. An accountant can model the exact figures for you.

Allowable expenses

Tradespeople can typically claim a wide range of business expenses. Every pound of allowable expense reduces your taxable profit:

Tools and equipment

• Hand tools – fully deductible in the year of purchase
• Power tools – deductible as a business expense (or capital allowances for expensive items)
• PPE – safety boots, hi-vis, hard hats, ear defenders
• Ladders, scaffolding and access equipment
• Testing equipment – multimeters, gas analysers, thermal cameras

Vehicle costs

Most tradespeople use a vehicle for work. You can claim costs using either the mileage rate or actual costs:

Mileage allowance (simplified):

Actual costs (apportioned): Claim the business proportion of fuel, insurance, road tax, repairs, servicing and finance costs. You will need a mileage log showing total miles and business miles.

If you use a van as your primary work vehicle, it is likely 100% business use and the full running costs are deductible. If you occasionally use it privately, you need to apportion.

Materials

Materials purchased for a specific job are deductible when the expense is incurred. Keep every receipt – merchants like Screwfix, Toolstation and Travis Perkins provide detailed receipts that satisfy HMRC requirements.

If you buy materials in bulk (keeping stock for future jobs), only the materials actually used on jobs completed in the tax year are deductible. Unsold stock at year end is an asset on your balance sheet.

Other common expenses

• Insurance – public liability, professional indemnity, tool insurance, van insurance
• Training and certification – gas safe registration, Part P electrical certification, CSCS cards
• Phone – business proportion of your mobile contract
• Advertising – Checkatrade, MyBuilder, local advertising, business cards, van signwriting
• Accountancy fees
• Workwear with your business logo (plain workwear without branding is not deductible)

On the tools all day? Start your free trial and capture receipts from your phone.

The Construction Industry Scheme (CIS)

If you work as a subcontractor on construction sites, the contractor must deduct tax from your payments under the CIS.

What you need to do

1. Register with HMRC as a CIS subcontractor
2. Get verified – give the contractor your UTR and National Insurance number so they can verify your status
3. Check your payment statements – the contractor should give you a statement for each payment showing the gross amount, deductions (20% if verified, 30% if not) and net payment
4. Record deductions on your Self Assessment – CIS deductions are not a separate tax; they are advance payments of your Income Tax and NIC liability

If you are a sole trader, your CIS deductions are set off against your Self Assessment bill. If you are a limited company subcontractor, they are set off against your PAYE liability.

Gross payment status

If you have a good compliance record and meet the turnover test (£30,000 minimum for sole traders), you can apply for gross payment status. This means contractors pay you the full amount without deductions, which is better for cash flow.

VAT

The VAT registration threshold is £90,000. Many tradespeople exceed this, especially those working on larger commercial or new-build projects.

Should you register voluntarily?

For tradespeople doing mainly domestic work, staying below the threshold or using the Flat Rate Scheme can be advantageous.

Domestic reverse charge

If you provide construction services to other VAT-registered businesses within the scope of CIS, the domestic reverse charge may apply. This means you do not charge VAT on your invoice – the customer accounts for it instead. See our construction accounting guide for details.

Cash handling

Many tradespeople receive cash payments, especially for smaller domestic jobs. Every cash payment must be recorded:

• Issue a receipt or invoice for every job, including cash ones
• Record cash income in your bookkeeping system
• Bank cash regularly so it appears on your bank statements
• Keep a record of any cash spent on materials for specific jobs

HMRC uses asset and lifestyle checks to identify unreported income. If your declared earnings do not support your visible standard of living, you will attract scrutiny.

Record-keeping tips

• Photograph every receipt on the day you get it – paper receipts from merchants fade quickly
• Use an app on your phone to log mileage as you drive
• Record income daily – especially cash payments
• Separate personal and business banking – use a dedicated business account
• Keep records for at least 5 years (sole trader) or 6 years (limited company)

Key deadlines

Common mistakes tradespeople make

• Not recording cash income – HMRC catches up eventually; the penalties include the tax owed plus up to 100% of the underpaid tax
• Forgetting to register for VAT – monitor your rolling 12-month turnover; HMRC can backdate the registration
• Not claiming all expenses – tools, PPE, certification renewals, van costs – they all reduce your tax bill
• Mixing personal and business finances – makes everything harder and raises red flags
• Leaving tax returns to the last minute – scrambling to find receipts in January that you should have recorded in April
• Not understanding CIS – check your payment statements and make sure deductions are being applied correctly

Getting organised

The most effective thing a tradesperson can do for their accounting is build habits:

1. End of each day – log any cash received, photograph any new receipts
2. End of each week – reconcile your records with your bank account
3. End of each month – review your income and expenses, check you are on track
4. End of each quarter – file your VAT return if registered
5. End of the tax year – gather your records and prepare for Self Assessment

Using accounting software with a mobile app makes most of this automatic. Receipt capture, bank transactions and VAT codes then sit together instead of in a shoebox.

Get paid for every job and keep the paperwork light. Start the free trial.