Our Top Tips To Become A Tax-Savvy Tradie

If you have found yourself in the fortunate position to be able to turn your talents into a trade, it could become the beginning of something wonderful.

Don’t let the only thing stopping you be a sketchy understanding of self-employment rules. The fact that it is all down to you to stay compliant with HMRC can be a daunting prospect after all; any mistakes, omissions or lateness and you could find yourself on the wrong side of an investigation.

That’s why it is important to brush up on all things tax. To make it easier, we have written the following guide to becoming a tax-savvy tradie.

1. Register For Self Assessment

If you are becoming self-employed for the first time, then you must register your new business with HMRC. This involves filling out a short online form. This should be done at the end of the tax year: the first April after you start to actively seek work. Doing this early allows you to keep ahead of the deadlines when it comes to the end of the tax year.

Another reason to register as soon as possible is that you can’t access your Self Assessment account without your Unique Tax Reference (UTR), Government Gateway ID and activation code. HMRC send these to you via post after receiving your registration form, and it could take up to eight weeks before you can even log in. Furthermore, if you fail to register within 28 days of receiving your code, it expires.

If you leave registering for an account until the end of the year, you may end up filing your tax return late and possibly even a penalty from HMRC.

2. Get Digital 

Our next piece of advice is to keep digital records of your accounts. If, like many others, you prefer paper tax returns over a digital submission, you’ll have to file your returns three months before everyone else. Paper returns are due on 31st October, but digital submissions are due on 31st January. It makes sense to give yourself that bit of extra breathing space.

Also, there may only be a few years of paper returns left before HMRC enforces online submission anyway. Making Tax Digital (MTD) was launched in 2019 to move businesses to an online filing system. The idea behind this was to prevent mistakes and to make it easier for taxpayers to pay. As a result, come 2023, paper returns will be a thing of the past. HMRC will also require sole traders to submit their self-employed income and expenses quarterly from April 2023.

This is why we suggest you become aware of tax software or the tools on the HMRC portal ahead of time. It’ll keep you current and give you an extra three months to file your tax return.

3. Look Out For Hidden Tax Savings

Once you have become familiar with the tax returns process, start researching the specific tax savings that are relevant to your trade. For example, if you travel a lot for work, there are two options to consider: you can make a flat rate mileage claim, or claim on the business element of your fuel, insurance, service, road tax and repair costs. Claiming expenditure like this helps to reduce your tax bill.

There are a number of further expenses that you might not be aware you could claim. For example, any accountancy fees or marketing costs (such as leaflets, websites, and newspaper adverts) are also allowable expenditure. The same is true of any uniform or tools you purchase for work purposes.

It’s worth noting that if you intend to claim the full cost of these items, you must use them solely for work purposes. So if you buy a laptop to do your accounting it must be for that purpose only. If you share it with your family for personal use, it wouldn’t be eligible for full relief and you would have to adjust for private use when claiming.

If at any point you have paid tax to the government, there is a chance you may be owed an HMRC tax refund.  Tax Refund Calculator can help you claim back what is rightfully yours.

There are a number of reasons why HMRC may owe you a tax refund, whether you have been using the wrong tax code, you wear a uniform to work or even the mis-allocation of pension allowances. Get in touch today and see what you are owed.

4. Keep Records

Whatever you purchase for work, make sure that you keep hold of all the receipts, invoices and bank statements that relate to it. The same applies to any income you make. If you fail to give HMRC evidence of income and expenditure should they launch an investigation, you could end up getting penalised.

There are three types of investigation:

• Full Enquiry – Where HMRC reviews the entirety of your business records because they believe there is a significant risk of an error in your tax calculations.
• Aspect Enquiry – A review of inconsistencies found in a particular section of your records (the most common investigation type)
• Random Check – A random review, usually as extensive as an aspect enquiry

If an investigation takes place, HMRC will usually review around four to six years of your tax records. This means that all receipts, bank statements and invoices must be kept in a readable condition.

5. Open A Business Bank Account

It is vital to keep your business’s finances separate from your personal income. This will help you keep a closer eye on the money entering and leaving your business and make bookkeeping much easier. Plus, you don’t want to get your own pocket money confused with your business’s.

An easy way to separate your personal and business finances is to set up a business bank account. With business account fees ranging from free to £12 per month (and transaction fees) it’s a relatively inexpensive way to keep on top of things.

The details and documents you’ll need to open a business bank account are:

• Proof of ID (such as a passport or photo driving licence) for all named business owners or named company directors
• Proof of address (such as a bank statement or utility bill)
• Proof of business address
• Estimated annual turnover
• Contact details
• Companies House Registration (if you run your business as a limited company or partnership)

Look for perks and services, such as fee-free introductory periods, apps and low charges.

Are You Entitled To An HMRC Tax Refund?

If at any point in your working life you have paid tax to the government, there is a chance you may be owed an HMRC tax refund. There are a number of reasons why HMRC may owe you a tax refund, whether you have been using the wrong tax code, you wear a uniform to work or even the mis-allocation of pension allowances. Tax Refund Calculator can help you claim back what is rightfully yours.