Calculate Your Tax Rebate as a Plumber in 2025/26

This scenario follows a self-employed plumber through their first full tax year, showing how income, expenses, and payments on account interact to create a potential rebate. It illustrates a common situation for newly self-employed tradespeople who may overpay in their first year.

Profile Summary

• Name: Craig Donnelly (fictional)
• Trade: Self-employed plumber, operating as a sole trader in Leeds
• Gross income (Year 1): £38,000
• Business expenses: £6,200
• Net profit: £31,800
• Tax region: England
• Tax year: 2025/26 (first full year of self-employment)

Craig's Business Expenses

• Van fuel and maintenance: £2,400
• Tools and equipment: £850
• Materials (not recharged to clients): £1,200
• Phone and broadband (business share): £360
• Public liability insurance: £380
• Accountant fees: £450
• Advertising and website: £560

Total expenses: £6,200. This brings Craig's taxable income from £38,000 down to £31,800.

Step-by-Step Calculator Walkthrough

1. Go to the tax rebate calculator
2. Select "Overpaid PAYE" as the rebate type (use this mode for any income-vs-tax comparison)
3. Set tax year to 2025/26 and region to England
4. Enter gross income: £31,800 (net profit after expenses)
5. Enter total tax paid: £5,772 (this is what Craig paid in his first Self Assessment bill plus payments on account)
6. Click Calculate Rebate

Tax Calculation

Why Craig Overpaid

In his first year of Self Assessment, Craig's tax bill was calculated on his Year 1 profit. HMRC then required payments on account for Year 2 — two advance payments of £1,923 each (50% of Year 1's bill). But Craig's Year 2 income turned out to be lower than Year 1 because he took three weeks off and lost a regular contract. His actual Year 2 tax liability was lower than the payments on account, resulting in a refund when he filed his return.

Key Takeaways

• Track every business expense: Craig's £6,200 in expenses saved him £1,240 in tax (at the 20% basic rate). Missing even a few hundred pounds of legitimate expenses means paying more tax than necessary.
• Understand payments on account: These advance payments are based on last year's bill and can easily exceed your actual liability if your income fluctuates.
• You can reduce payments on account: If you know your income will be lower next year, apply to HMRC to reduce the advance payments before they're due.
• Keep records from day one: Good bookkeeping makes your tax return faster, cheaper (lower accountant fees), and ensures you claim everything you're entitled to.

Frequently Asked Questions

Does Craig need an accountant?

It's not legally required, but advisable for most self-employed people — especially in the first year. An accountant ensures all allowable expenses are claimed and the return is filed correctly. Craig's £450 accountant fee is itself a tax-deductible business expense.

Can Craig claim for the van itself?

Yes, if Craig bought a van for business use, he can claim capital allowances on the purchase price. For vans, the Annual Investment Allowance allows a 100% deduction in the year of purchase (up to £1 million). If the van is also used personally, only the business proportion is allowable.

Related: Self-Employed Tax Guide · Work Expenses Guide · Nurse Uniform Scenario

Understanding Payments on Account

Payments on account are advance tax payments that self-employed individuals must make in two equal instalments — on 31 January and 31 July — during the tax year following the one in which the income was earned. For Craig in 2025/26 (his first year), no prior year’s tax liability exists, so these payments should technically be based on the *current* year’s estimated liability — but HMRC often defaults to using the previous year’s tax if no estimate is provided, which can lead to overpayment in the first year. This is especially common for newly self-employed tradespeople like Craig, who may not yet be familiar with the system. In his case, HMRC applied £2,886 (50% of £5,772) as each of two payments on account, totalling £5,772, even though his final tax liability was only £3,846. Understanding this helps explain why a rebate is due, and why it’s important to submit accurate estimates early in the tax year to avoid unnecessary cash flow issues.

How the Rebate Is Calculated

Craig’s final tax bill for 2025/26 is £3,846 (20% on £19,230 taxable income), but he paid £5,772 in total — including two payments on account and potentially a balancing payment. The difference of £1,926 is eligible for a tax rebate. Importantly, no interest or penalties apply in this scenario because the overpayment stems from HMRC’s default use of prior-year figures (not underestimation by the taxpayer), and Craig filed his return on time. The rebate is processed automatically once the Self Assessment return is submitted and accepted. Many newly self-employed tradespeople assume they must apply separately for a rebate, but in most cases, HMRC issues it automatically — often within 4–6 weeks of return acceptance. This section clarifies how the numbers align and reassures readers that overpayments in the first year are not only common but recoverable without extra steps.

Tips for Future Years

In subsequent years, Craig can avoid overpaying by submitting a ‘Curtailment’ request (Form SA303) before the 31 July payment on account deadline to reduce or cancel the second instalment. He should base this on a realistic forecast of his current year’s income and expenses — for example, if he expects earnings to fall or costs to rise, he can estimate a lower tax liability and adjust his payments accordingly. Additionally, keeping detailed, up-to-date records (e.g., using a simple spreadsheet or accounting app) helps ensure he claims all eligible deductions. Tradespeople in particular may overlook expenses like travel between job sites, protective clothing, or even home office use if they work on drawings from home. Planning ahead and understanding HMRC’s rules can significantly improve cash flow and reduce stress during tax season.

Understanding Payments on Account

Payments on account are advance tax payments that self-employed individuals must make in two equal instalments — on 31 January and 31 July — during the tax year following the one in which the income was earned. For Craig in 2025/26 (his first year), no prior year’s tax liability exists, so these payments should technically be based on the *current* year’s estimated liability — but HMRC often defaults to using the previous year’s tax if no estimate is provided, which can lead to overpayment in the first year. This is especially common for newly self-employed tradespeople like Craig, who may not yet be familiar with the system. In his case, HMRC applied £2,886 (50% of £5,772) as each of two payments on account, totalling £5,772, even though his final tax liability was only £3,846. Understanding this helps explain why a rebate is due, and why it’s important to submit accurate estimates early in the tax year to avoid unnecessary cash flow issues.

How the Rebate Is Calculated

Craig’s final tax bill for 2025/26 is £3,846 (20% on £19,230 taxable income), but he paid £5,772 in total — including two payments on account and potentially a balancing payment. The difference of £1,926 is eligible for a tax rebate. Importantly, no interest or penalties apply in this scenario because the overpayment stems from HMRC’s default use of prior-year figures (not underestimation by the taxpayer), and Craig filed his return on time. The rebate is processed automatically once the Self Assessment return is submitted and accepted. Many newly self-employed tradespeople assume they must apply separately for a rebate, but in most cases, HMRC issues it automatically — often within 4–6 weeks of return acceptance. This section clarifies how the numbers align and reassures readers that overpayments in the first year are not only common but recoverable without extra steps.

Tips for Future Years

In subsequent years, Craig can avoid overpaying by submitting a ‘Curtailment’ request (Form SA303) before the 31 July payment on account deadline to reduce or cancel the second instalment. He should base this on a realistic forecast of his current year’s income and expenses — for example, if he expects earnings to fall or costs to rise, he can estimate a lower tax liability and adjust his payments accordingly. Additionally, keeping detailed, up-to-date records (e.g., using a simple spreadsheet or accounting app) helps ensure he claims all eligible deductions. Tradespeople in particular may overlook expenses like travel between job sites, protective clothing, or even home office use if they work on drawings from home. Planning ahead and understanding HMRC’s rules can significantly improve cash flow and reduce stress during tax season.