So, you’ve chosen roofing as your career and decided to be your own boss. You’ve got the business plan, the skills, the tools, and the customer connections – but it’s not just the relationship with your customers you have to consider. There’s also your responsibilities to Her Majesty’s Revenue & Customs.
So many questions; just how much tax will I have to pay? When and how will I have to pay it? Can I claim expenses? What about VAT? To be fair, it is a little complicated, however, put some time aside to look into it and all will become clear.
It might seem obvious but the best place to go for information is the HMRC itself, or rather its website, which you can access via www.gov.uk.
To be fair, it is a little complicated, however, put some time aside to look into it and all will become clear
As well as providing the detail on tax and VAT in bite-sized pieces, HMRC also offers helpful, interactive web-based video conferences that are free to access. You can join them ‘live’, even post a question, or log onto YouTube for video-based tips. There’s also a telephone helpline should the online support not be your cup of tea.
But before we talk about tax, here’s one piece of advice – find yourself a reliable accountant or tax adviser. Ask trusted colleagues who they use, or speak to family and friends and find out who they would recommend.
As well as sorting out your annual tax return, a good accountant will be happy to answer any additional questions you might have. For all the hassle it takes away it’s worthwhile and relatively inexpensive.
The Income Tax band you fall in and therefore the amount of tax you pay will depend on your profit, not your total income
Let’s talk tax
As a sole trader, you will need to fill in a Self-Assessment form every year, either a paper one or online – watch out for the differing deadlines, however if you have an accountant they can help you with this.
The Income Tax band you fall in and therefore the amount of tax you pay will depend on your profit, not your total income. HMRC will calculate what you owe based on the figures you supply in the Self-Assessment form.
The good news is you can set some of your outgoings against your income to bring down your taxable profit. This includes such things as the use of your home as an office, internet and mobile phone costs.
If, for example, your turnover is £40,000 and your expenses are £10,000, you only pay tax on £30,000.
It’s also important to keep separate business and private bank accounts. Don’t be tempted to ‘borrow’ from one to pay the other, because when it comes to paying your tax bill you might find the money’s not there. Many banks offer 12 months or more free business banking to help you get started.
Don’t forget; as a sole trader you usually also pay two types of National Insurance (NI) – Class 2 and 4 – which qualify you for benefits including the State Pension. Class 2 is a set weekly rate – currently £2.95, while Class 4 is a sliding scale linked to profit. Most sole traders pay NI through Self-Assessment along with their Income Tax.
It’s also important to keep separate business and private bank accounts
VAT’s all folks
Finally, VAT. To register and pay it, or not? If your annual turnover is £85,000 or over you will have to register regardless – but if less than that it’s your choice.
The main benefit of being VAT registered is that some people and businesses consider you to be more professional. Having that VAT number on your invoices gives the impression that your business is more established, something that customers like to see.
The standard VAT rate is, of course, 20% and you will always charge customers this amount. However, when it comes to you paying VAT to the HMRC, they offer you the choice of doing so under something called the Flat Rate scheme – which is a ‘simplified’ way of calculating your VAT.
As a roofer, the Flat Rate you would pay can vary considerably depending on whether you are supplying labour-only or labour and materials, so it’s important to check.
A downside of being VAT registered is filling in a quarterly VAT return, however it’s not that difficult or time-consuming and HMRC will send you a reminder one month in advance.
There are other ways to set yourself up in business – such as a limited company and we’ll look at that in a future issue.