Self Assessment Tax Return for Plumbers
Being a plumber is one thing, Tax Return for Plumbers Self Assessment is another. At LibAbun Accountancy, we’ll ensure you never miss another tax deduction when filing your receipts with HMRC for your Self-Assessment again.
Whether you are paid in cash, bank transfers or cheques you must record your income. It is recommended that you use an Accounting tool to record every client payment you receive. Issuing sales receipts and keeping a copy in a safe place can be used as proof of income if required by HMRC. Libabun Accountancy use XERO Accounting Application to record all your sales and bills and are readily accessible wherever you are in the world. You can even access them via Smartphone.
Keep your books in order
When completing plumbing jobs you will invoice your clients a total amount including labour and material costs. When completing your tax return your income is the total amount that you invoice your clients including labour and material costs. Material costs in these instances are classed as business expenses and so should be noted on your tax return so that you can receive tax relief on these costs. In this instance, it’s very important to keep your records updated.
Some common examples of expenses that a plumber could claim are materials, equipment, travel and protective clothing. To claim costs as expenses you need to note the amount on your tax return. Your total expenses amount will be deducted from your total income and as you are only required to pay income tax on your income you will receive tax relief on business expense costs.
In Libabun Accountancy, you no longer need to worry about missing receipts or unrecorded expenses as we use ReceiptBank application to capture ALL your bills and expenses. Application is also accessible using your Smart Phone.
Keep your personal finances separate
If you are working as a sole trader than there is a lot more crossover between your personal finances and your business finances. It is always best to keep them as separate as possible, ideally with separate bank accounts, but when it comes to self assessment you are effectively completing a personal tax return.
This means as well as keeping invoices for your work as a plumber, you’ll also need to be able to provide details of any other income earned during that financial year. It could be a salary earned in permanent employment that ended shortly before you became a sole trader. If so, you will need details of any PAYE salary, all of which should be on the P11D or P45 provided by your employer when you left.
Other income to consider could be payments from a part time job, rental income for any property you may own or even interest on any savings you might have.
Please read our article on How to Pay Yourself as a Sole Trader to know more on importance of keeping a separate Business Bank Account.
We also have a separate article on taxes you need to pay if your Plumbing Business is registered as a limited Company(link to follow) which also includes Self Assessment Tax Return.
Your Self Assessment Tax Return
According to figures from HMRC, up to 10 per cent of the nine million people who complete a Self Assessment Tax Return every year miss the deadline, so it is important that you are not in the minority, as you don’t want to fall foul of the key dates and land yourself with a hefty fine.
While you may have months to do it, getting started as soon as possible after the financial year ends can really ease the burden and pressure. Don’t leave it until the last minute as you won’t be leaving yourself any time to tackle issues that your paperwork may throw up. Even if you don’t receive the form to fill in, it’s your responsibility to request one or download one online, you won’t get away with not doing it so best to get it done in plenty of time.
When to Submit your Self Assessment Tax Return
A Self Assessment has to be completed by the 31st January each year. This involves completing a Self Assessment (or Form SA100) and is usually done online, though it’s still possible to file in the old fashioned way with a paper form.
Self Assessment is HMRC’s way of finding out how much Income Tax and National Insurance you need to pay. Employees have their Income Tax deducted automatically from their employment income through the PAYE system – this doesn’t happen for self-employed workers, or for some other types of income, such as dividends, pensions or income from savings and investments, which is where the Self Assessment comes in.
If you decide to start working for yourself, you must inform HMRC of your decision, regardless of wether you already complete a Self Assesssment tax return.
It is best to register with HMRC as soon as you start your Plumbing Business. The latest you can register is by the 5th October in your business’ second tax year. HMRC can issue penalties for late registration, so it’s in your best interests to do this on time.
Once you are registered as self-employed, you should automatically be sent a Self Assessment notice following the end of each tax year.
What is UTR number?
A Unique Tax Reference (UTR) is a reference number assigned by HMRC to identify you as a tax payer. You should quote this number whenever you correspond with HMRC. If you register as self-employed or a sole trader, HMRC will issue your UTR automatically, usually within 28 days.
How much income tax will I pay as a sole trader?
All the figures in the following example are based on the HMRC published rates and thresholds for the 2020/21 tax year.
Your Income Tax is always calculated on total earnings, so you’ll have to pay tax on amounts above the Personal Allowance for your combined income from employment and sole trader profits (from self-employment). We’ll talk about the difference between income and profits a bit later.
It’s important to realise that if your sole trader profits push your total earnings into a higher tax band, you’ll have to pay the higher rate.
An example for the 2020/21* tax year:
Income from an employer
Profits from sole trade (self-employment)
Total taxable income
Income Tax paid at basic rate (20%)*
Income Tax paid at higher rate (40%)*
Total Income Tax paid
You’ll pay income tax of 20% on all earnings above your personal allowance and below the upper limit of the basic rate, which is £37,500 for the 2020/21 tax year. You’ll pay income tax of 40% on all earnings above the basic rate limit until you reach the higher rate limit (which in the 2020/21 tax year is £100,000). In this example, you pay 40% tax on the income of £5,000.
When you prepare your annual Self Assessment tax return, you will disclose the tax already paid on your earnings from your employer (in this example £35,000 would have been taxed under PAYE arrangements). So HMRC will know you have already paid tax on part of your total income. The amount of tax you pay on your profits from self-employment (£20,000 in this example) will be worked out by HMRC when you submit your Self Assessment.
Paying National Insurance as a Sole Trader Plumber
As a sole trader you pay two types of national insurance contribution (NIC).
Firstly, if your self-employed profits exceed £6,475, you’ll have to pay a flat rate of £3.05 per week. This is called Class 2 National Insurance. You usually pay Class 1 National Insurance through PAYE via your employer, but Class 2 is paid directly to HMRC through a direct debit, which you can register for online at Gov.uk.
If you’re doing well, you may also have to pay Class 4 National Insurance. This is charged at 9% for all self-employed profits between £9,500 and £50,000, and at 2% for all profits greater than £50,000.
Just like your Income Tax, Class 4 National Insurance contributions will be worked out on your Self Assessment tax return.
Computation of NIC from the above income example:
Profits from self-employment
Class 2 National Insurance (52 weeks @ £3.05 per week)
Class 4 National Insurance (9% on profit between £9,500 and £50,000 – in this example the profit is only £20,000 so 9% * £10,500)
Total National Insurance paid
If you are employed, like in our example above, you’ll have your Class 1 National Insurance to pay too, through PAYE deductions made by your employer for your paid employment.
Self-employed National Insurance contributions
Please refer to the table below for the NIC for 2019-20 and 2020-21
2019/20 Tax Year
2020/21 Tax Year
Small profits threshold Earnings below this threshold incur no National Insurance Contributions (NICs).
Class 2 NICs For those earning above the Small profits threshold
£2.95 per week
£3.05 per week
Lower Profits Limit Earnings up to this limit incur only Class 2 NICs. Over this limit incurs Class 4 NICs.
Upper Profits Limit Any earnings up to this limit incur:
Class 2 NICs
Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit.
Earnings above the Upper Profits Limit
Any earnings above this limit incur:
Class 2 NICs
Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit
Class 4 NICs at 2% of the profit above the Upper Profits Limit.
Paying your Tax Bill
As a Sole Trader Plumber, your tax is due before the 31st January, following the tax year end. If your tax bill is over £ 1,000, then you must make payments on account. This means that HMRC will collect your tax plus the current year’s tax in two payments; one payment before 31st January and the second before 31st July.
Do I need to register for VAT?
You must register for VAT if your turnover exceeds £85,000 (2020/21) in any given twelve months.
However, if your customers are also VAT registered it could be beneficial to register for VAT voluntarily before you reach this threshold.
What happens if I start employing someone?
If you take an employee, you will need to register as an employer with HMRC straight away and start running payroll.
We can process Payroll for you and submit it to HMRC.
We will also process and submit your Tax returns, NIC, PAYE, and VAT to HMRC.
At Libabun Accountancy our client accounting team understands that you want to spend as little time as possible updating your accounts so that you can focus on fulfilling your contracts, winning new business and enjoying your free time. We will help you on your journey with accountancy support and advice to assist you with growing your business.
LibAbun Accountancy have been working with several of businesses of all shapes and sizes across the UK. We have gone to great lengths to listen to the needs of businesses, to invest in technology and to train our client accounting team to deliver a high level of service to new and old clients alike.
Our focus on people, advice and technology has created a leading online accounting experience. We have embraced technology, combining online accounting software with help and advice delivered by a friendly accounting team. We are confident that you will find managing your accounts quicker, easier and more convenient.
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