A self-employed tradesman quotes £100 plus VAT for a job. The customer accepts, and the tradesman gets to work.
For this deliberately simplified example, the £100 is entirely additional taxable profit. There are no materials or other job costs, and no input VAT to recover. The tradesman pays 40% Income Tax and 2% Class 4 National Insurance on this additional profit, outside the Personal Allowance withdrawal band.
Here is how the money travels:
| Stage | Tradesman’s money or purchase excluding VAT | State receives at this stage | State’s cumulative total |
|---|---|---|---|
| Customer pays £100 plus £20 VAT | £100.00 | £20.00 | £20.00 |
| Income Tax: 40% of £100 | £60.00 | £40.00 | £60.00 |
| Class 4 NI: 2% of £100 | £58.00 | £2.00 | £62.00 |
| Tradesman spends his remaining £58 on a kitchen appliance, including 20% VAT | £48.33 appliance price excluding VAT | £9.67 | £71.67 |
The final VAT calculation needs a little care. The £58 shop price already includes VAT, so the VAT element is one-sixth:
£58 ÷ 6 = £9.67.
The appliance’s price excluding VAT is:
£58 ÷ 1.20 = £48.33.
Who ends up with what?
Of the customer’s original £120:
- £71.67 goes to the state through the taxes illustrated.
- £48.33 represents the appliance’s price excluding VAT.
That is approximately 59.72% for the state and 40.28% for the appliance before VAT.
The tradesman found the customer, prepared the quotation, did the work and accepted the responsibility. The state did rather well out of the arrangement too.
A deliberately selective illustration
This follows one additional job and the subsequent spending of its proceeds. It is not the tradesman’s average annual tax rate: his lower income bands and allowances are not shown.
It also assumes that the original customer cannot recover VAT and that the appliance is bought for private use. The appliance still has a retail price of £58; £48.33 is its price excluding VAT, rather than an independent assessment of its value.
The example is slightly mischievous, but the arithmetic shows how taxes on earning and spending can accumulate.
Sources and calculation basis
Prepared 11 November 2026. The illustration uses the higher-rate Income Tax rules for England, Wales and Northern Ireland, assumes the tradesman is liable to Class 4 NI at 2%, and applies normal VAT accounting at the standard 20% rate. Figures are rounded to the nearest penny.