Most people in the trades end up self-employed at some point, and most of them start without being told any of this. None of it is complicated. All of it is easier done in the first month than in the following January.
Are you actually self-employed?
This is not a matter of what the person paying you calls it. HMRC looks at how you really work. You are pointing towards self-employment if you quote or price work, decide how and when the job gets done, provide your own tools and put right your own mistakes at your own cost, and carry real financial risk. You are pointing towards employment if you are paid by the hour, day or week, told what to do and how, supervised closely, and given the materials and equipment.
HMRC’s own example is a plumber paid for a specific piece of work who is responsible for rectifying any defective work at his own cost — self-employed. And there is a distinction worth holding onto: being taken on for the length of a project is not the same as being taken on by the task. Long project work paid by the day, under someone else’s control, still looks like employment.
Being paid under CIS does not make you self-employed
CIS is a way of deducting tax from people who are already genuinely self-employed. It is not evidence of status, and it will not protect anyone if HMRC decides otherwise. If you are not sure, run HMRC’s free CEST tool (Check Employment Status for Tax) on GOV.UK and keep a printout — HMRC will stand by the result as long as what you told it was accurate. Gather the contract details first: the tool cannot be saved halfway through.
Registering with HMRC
- You must register for Self Assessment as a sole trader once you earn more than £1,000 in a tax year from self-employment.
- The deadline is 5 October following the end of the tax year you started in. Start work in June 2026 and you register by 5 October 2027 — but do it straight away instead, because you cannot be paid at the CIS rate of 20% until you are registered.
- Register online at GOV.UK. If you are going to be a subcontractor, tick the subcontractor option and you will be registered for Self Assessment and CIS in one go.
- You will be issued a UTR — a ten-digit Unique Taxpayer Reference. Every contractor who pays you will ask for it. Registering late does not move the tax deadline: the bill is still due on 31 January.
Sole trader or limited company?
Almost everyone starting out in the trades registers as a sole trader, and for most people that is the right answer.
Sole trader means you and the business are the same legal thing. You register with HMRC, keep records, and file one tax return a year. It costs nothing to set up. The trade-off is that there is no legal wall between you and the business, so if something goes badly wrong your own assets are exposed.
A limited company is a separate legal entity. It limits your personal liability, and above a certain level of profit it can work out more tax-efficient. It also brings Companies House filings, annual accounts, corporation tax, running a payroll, and in practice an accountant to keep on top of it all. Being a company does not take you out of CIS either — contractors still deduct from your payments; only the way you reclaim it changes.
The sensible order is to start as a sole trader and let an accountant tell you when incorporating is worth it. That conversation is usually triggered by profits, not ambition. Going limited on day one, before you know what your profits actually look like, tends to mean taking on the paperwork well before you see any of the benefit.
One thing worth knowing either way: you do not need a limited company to trade under a business name. You can be Smith Roofing and still be a sole trader.
What you will pay in 2026/27
| On profits | Income tax | Class 4 NI |
|---|---|---|
| Up to £12,570 (personal allowance) | 0% | 0% |
| £12,571 to £50,270 | 20% | 6% |
| £50,271 to £125,140 | 40% | 2% |
| Over £125,140 | 45% | 2% |
Class 2 National Insurance is no longer charged. If your profits are above the Small Profits Threshold of £7,105 you are treated as having paid it, and your National Insurance record is protected for nothing. Below that, you can pay voluntary Class 2 at £3.65 a week to keep your State Pension years building up — worth doing in a part-year when you have just started.
You can either claim your actual business expenses or the flat £1,000 trading allowance, but not both. In the trades the allowance is almost never the better deal; tools, van and insurance pass £1,000 quickly.
Income tax bands are different in Scotland. Everything else on this page applies UK-wide.
The dates
| Date | What is due |
|---|---|
| 5 Oct 2026 | Register, if you have not filed a return before |
| 31 Oct 2026 | Paper tax return deadline |
| 31 Jan 2027 | Online return and payment of the tax you owe |
| 31 Jul 2027 | Second payment on account, if you make them |
Payments on account are advance payments towards next year’s bill, each usually half of what you owed last year. You do not make them if your last bill was under £1,000, or if more than 80% of your tax was already collected at source — which, for a subcontractor with 20% taken off every invoice, it often is. Whether they apply to you depends on your figures, so check rather than assume either way.
Making Tax Digital started in April 2026 — and it catches more trades than people expect
If your qualifying income was over £50,000, you have been in Making Tax Digital for Income Tax since 6 April 2026. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
The catch is what qualifying income means: it is your gross turnover before expenses — before your materials come out, and before CIS is deducted. Invoice £55,000 in a year with £15,000 of materials in it and £35,000 of actual profit, and you are in.
It means keeping your records digitally in compatible software and sending quarterly updates — due 7 August, 7 November, 7 February and 7 May — followed by a final declaration by 31 January as usual. The updates are cumulative, so mistakes get corrected in the next one rather than resubmitted. HMRC is not applying late-update penalty points during the 2026/27 year.
One thing to expect if you are on CIS: your quarterly updates show gross income, and your CIS deductions are not in them. HMRC adds those automatically at the final declaration. Your quarterly figures will look alarming. They are not the bill.
What you can claim
- Tools, power tools and equipment. Under the cash basis — the default since 2024/25 — you deduct them in full in the year you pay for them. Cars are the exception and go through capital allowances.
- Protective clothing and workwear. Boots, hard hat, hi-vis, gloves, overalls, branded work clothing: all claimable. Ordinary clothes are not, even if you only wear them for work — jeans and plain t-shirts fail the test, and have done since a court case in 1983.
- Mileage. The rate rose on 6 April 2026 to 55p a mile for the first 10,000 miles, then 25p (24p for motorcycles). Most guides still say 45p. You cannot use the flat rate on a vehicle you have already claimed capital allowances on, and once you choose the flat rate for a vehicle you stay with it. Parking and fares are claimable on top.
- Working from home. A flat £10, £18 or £26 a month depending on the hours you put in at home — 25, 51 or 101 hours a month. Phone and internet are claimed separately.
- Insurance, materials, subcontractors you pay, business phone, accountancy and work-related training.
One caution on travel: driving between different sites is fine, but a long spell working at the same site every day starts to look like commuting, and commuting is not claimable.
Records
Keep everything for at least five years after the 31 January filing deadline for that tax year. If you are on CIS, your payment and deduction statements are the most important paper you will handle all year — they are the evidence for getting your money back. Photograph them as they arrive.
Setting up properly
- A business bank account. Not legally required for a sole trader, but it makes the bookkeeping honest, it is what Making Tax Digital software connects to, and running the business through a bank account is one of the conditions for CIS gross payment status later on.
- Public liability insurance. Not a legal requirement either — but a contractual one almost everywhere. Cover of £1m to £5m is typical, and larger sites and public-sector work often ask for £5m or £10m. Check what your contract specifies before you buy.
- Employer’s liability insurance. This one is the law, the moment you take anyone on. Minimum £5m, from an FCA-authorised insurer, and the fine for going without is £2,500 for every day you are uninsured. If you use labour-only subcontractors, ask your insurer whether they count — usually they do.
- Van and tool cover. Your motor policy has to be business use; social and commuting cover can be voided the moment you carry work gear. And read the tools section: most policies will not pay out for theft from an unattended van overnight.
- Your CSCS card — see our guide on how to get a CSCS card.
Pricing your day rate
A day rate is not a wage. Before you compare it with what you earned employed, take out the things that used to be somebody else’s problem: holidays, bank holidays, sick days, quiet weeks between jobs, your van, fuel, tools, insurance, phone, accountant — and the tax, which nobody deducts for you if you are outside CIS. Work out how many days you will genuinely invoice in a year, not 260, and put money aside for tax every week rather than every January.
Once your turnover in any rolling twelve months passes £90,000 you have to register for VAT, which brings the construction reverse charge with it — that is covered in our guide to how CIS works.
There is no safety net, so build one
The part nobody mentions when they offer you a day rate is everything that quietly stops applying the moment you stop being employed. No sick pay. No holiday pay. No redundancy. If you do not work, nothing arrives.
Three habits are worth building in your first year, before you find out the hard way.
Keep tax money somewhere you cannot spend it. A second bank account, money moved across every time you get paid, never touched. The proportion depends on your profits and your costs, so ask your accountant for a figure rather than guessing — but the habit matters more than the precision. The January bill arrives whether or not you have the money, and this is the single thing that decides which of those it is.
Build a buffer for the gap. Thirty-day payment terms are normal in construction, and not everyone honours them. Going from a monthly wage to invoicing means a stretch at the start with nothing coming in, and the occasional stretch later when a contractor goes quiet.
Look at income protection. It is the cover nobody buys and the one that bites. A broken wrist is a few weeks off the tools with no wage behind it. Whether it is worth the premium depends entirely on your circumstances — that is a question for an insurance broker or a financial adviser, not for us — but it is worth asking rather than assuming you are covered.
If a mortgage is on the horizon, one more thing: lenders generally want two or three years of accounts before they will lend to a self-employed applicant on the same terms as an employee. Worth knowing before you hand your notice in rather than after.
Where we come in
Our adult trade courses in Birkenhead are built around people doing exactly this — going out on their own with a trade behind them. Ring 0151 666 2180 or email info@cornerstone-training.co.uk.
Figures are for the 2026/27 tax year. Every effort has been made to make sure this information was correct at the time of production, September 2026, but tax rates, thresholds and deadlines change. This is general information, not tax or legal advice — we are a training provider, not accountants — so always check your own position with your accountant or tax adviser, or with HMRC, before you act on anything here.