Finance Guide for Tradespeople

Sole trader, partnership or limited?

A single trader doing domestic work is usually fine as a sole trader. Two trades working together full-time should consider a partnership or, more often, a limited company — partnerships expose each partner to the debts of the other. Any trade business with employees, vehicles registered to the business, or significant contract value should incorporate for liability protection. The crossover for tax efficiency is again around £40k–£50k of profit.

CIS — Construction Industry Scheme

If you are paid by another business for construction work — building, alterations, decorating, demolition, civil engineering — CIS almost certainly applies. As a subcontractor, you register with HMRC and the contractor deducts 20% from your labour (30% if you don't register) before paying you; the deductions count as advance tax. As a contractor, you must verify subcontractors with HMRC, deduct the right percentage and file a monthly CIS300 return by the 19th.

Banking, deposits and quotes

Open a business current account and a separate savings account for tax. Add a business credit card for materials runs — the float between buying materials and getting paid is the single biggest cashflow squeeze most trades feel.

For any job over £500, take a deposit of 25–50% upfront to cover materials. Use a written quote that includes scope, materials list, labour estimate, payment schedule, payment terms and what triggers a variation. Quotes prevent disputes more reliably than any other single document.

Van, tools and materials

Vans are claimed differently from cars: you can usually claim 100% of running costs and capital allowances on the purchase price, providing there's no significant private use beyond commuting and incidental personal trips. Cars are more restricted — get advice if the work vehicle could be classified as either.

Getting paid — and on time

Trade businesses fail more often on cash flow than on revenue. Build a simple invoicing rhythm: deposit on contract signature, stage payments at agreed milestones for jobs over a week, and final payment on completion (not "30 days after"). Issue the invoice the same day work is signed off; include a payment link (Stripe, GoCardless, bank transfer details); chase at +7, +14 and +21 days with escalating tone. The Late Payment of Commercial Debts Act gives you the right to claim 8% interest above base plus a fixed compensation fee on overdue B2B invoices — mention it in your second reminder.

VAT and the reverse charge

The £90,000 threshold applies as elsewhere. The key wrinkle for construction is the Domestic Reverse Charge: for most B2B CIS-applicable services between VAT-registered businesses, the customer accounts for the VAT, not you. You issue an invoice with no VAT charged but a note explaining the reverse charge. Your bookkeeping software handles this once set up. Domestic (consumer) jobs are still standard-rated at 20%.