On 6th April 2024, the 2024/25 tax year dawned. With it, some new tax regulations came into effect, which will affect thousands of self-employed tradespeople in the UK, including you. Let’s talk about these important tradesman tax updates now.
Tax can be confusing at the best of times. For years, people have been asking; why not make it more straightforward? Well, it seems that someone somewhere has finally listened, as several new tax changes have been ushered in this year which aim to simplify the system for the taxpaying public, while easing the administrative workload on HMRC themselves.
So, what do these sole trader tax changes look like?
Before April 2024, sole traders could choose their own accounting period. Now, the tax year runs from 6 April to 5 April for everybody, and your accounting period must align with this.
So, from the 2024-25 tax year (with the 2023-24 tax year acting as a transitional period), sole traders will be taxed on their profits arising over a single, consistent tax year.
If your business finances have been negatively affected by the basis period reform, you maybe able to claim Overlap Relief. This will ensure you don’t lose out financially if you’ve been taxed twice on the same income and your profits may need to be apportioned between accounting periods. If there is an extra period that’s not accounted for under the new tax year (e.g., if your accounting period was different to 6 April – 5 April 2023-24), then the tax due for the profits incurred during this transition period (aka the ‘transitional profit’) will be spread over five years.
The VAT Registration Threshold has risen to £90,000, so sole traders don’t need to register for VAT until their taxable turnover reaches this amount (previously £83,000).
Further, the High-Income Child Benefit Charge has also risen to £60,000. This means that if you’re a sole trader earning at least this much annually, then you may need to pay a tax charge at the end of the tax year if you’re also receiving Child Benefit payments (or you can opt out if it’s simpler for you).
From 6 April 2024, self-employed tradespeople will see their National Insurance contributions (NICs) reduce. Instead of the previous rate of 8%, it will be at 6%. This is to ease the tax burden on self-employed people in the UK, great news for tradespeople. Further, sole traders will no longer be required to pay Class 2 NICs unless they choose to do so voluntarily to maintain their entitlement to certain state benefits.
Unless you’ve been living under a rock, you probably know that in the not-too-distant future, sole traders like you will be required to submit their income tax and Self Assessments digitally. This doesn’t just mean submitting the final figures on the HMRC online portal, but also keeping records throughout the year using compatible software in order to streamline processes and keep everything accurate.
If you’re not quite ready for Making Tax Digital (MTD) yet, then you’re in luck. The deadline remains extended until April 2026 for sole traders earning above £50,000, with April 2027 set for sole traders earning above £30,000.
As a tradesperson operating as a sole trader, you’ve chosen a relatively straightforward business model which requires less administrative and accounting burden than other structures, such as limited company director. However, you still need to be savvy about budgeting for tax payments otherwise you could find yourself in a right old mess.
Seems obvious, but if you need to pay tax on the profits you’re making then you have to keep money aside throughout the year. Work out the tax bracket you’re likely to fall into and keep that percentage aside as a minimum. Remember your Class 4 and/or Class 2 NI contributions, too. As a reminder, here are the tax brackets for 2024:
It’s important to keep accurate records of your income and expenses as a self-employed tradesperson. Since Making Tax Digital will be upon us in 2026, now is a good time to get acquainted with accounting software that can assist you with keeping meticulous records of your income, expenditure and expenses digitally without you having to faff with several different systems and bits of paper.
Even if you’re confident about tax and don’t have any qualms keeping up with the ever-changing landscape of tradesperson accounting, it’s a good idea to call in the professionals at least once to kick the tyres and make sure everything is in good order. It’s always worth getting personalised advice, as there may be something you’re missing. A pro can help ensure you’re fully compliant with the tax regulations – and might be able to help you operate in a more tax-efficient manner, too.
We may not be tax experts over here at Rhino HQ, but we are experts in trade insurance. Here’s what we can offer our customers:
Rhino Trade Insurance offer a range of comprehensive insurance coverage options that can help sole traders protect their businesses. From our flagship Public Liability Insurance to amazing add-ons including Tools and Equipment Insurance, Personal Accident Insurance, Tax Enquiry Insurance and many more, Rhino have got your sole trader enterprise covered.
Rhino Trade Insurance offers valuable industry insights and updates, helping sole traders stay informed about regulatory changes. We have a blog packed with useful information for tradespeople covering topics ranging from the secret to the perfect cup of tea to the future of the trades industry. We know the issues affecting self-employed tradespeople in the UK today, so come to us to get the no-nonsense lowdown.
With Rhino, you’ll get just about the finest customer service around. Our friendly team can answer pretty much any question under the sun, and the support we offer our policyholders is second to none. This includes assistance with understanding and adapting to tax year changes, so give us a call now and see what we can do for you.
Confused about Public Liability Insurance? We’ve got you covered. Learn how this essential policy protects your business from accidental damage and injuries, why it’s important, and how you can get affordable cover tailored to your trade with Rhino Trade Insurance.
In this guide, we'll delve into the risks shopfitters face, explore the types of insurance that can offer protection and explain why many shopfitters trust Rhino Trade Insurance with their business needs.
Are you a carpet fitter? Do you work for yourself? If the answer to both those questions is yes, put down whatever you’re doing and keep reading. Your business will thank you for it.
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