VAT is one of the things that worries new tradespeople most. The good news is that most sole traders starting out don't need to register. Here's how to tell when you do.
The VAT threshold
According to GOV.UK, you must register for VAT if:
- your total taxable turnover for the last 12 months goes over £90,000, or
- you expect it to go over £90,000 in the next 30 days.
The 12 months is a rolling period, not the tax year. Every month, look back at the last 12 months of sales. It's easy to miss, especially when you have a busy summer.
Turnover means your sales, not your profit. If you invoiced £95,000 in a year but spent £40,000 on materials, your taxable turnover is still £95,000. This catches out trades with high material costs, like builders, roofers and landscapers, who can go over the threshold while their profit is still modest.
When registration takes effect
If you go over the threshold in the last 12 months, GOV.UK says your effective date of registration is the first day of the second month after you went over. From that date, you need to charge VAT on your taxable sales. Check the GOV.UK registration guide for the exact steps and deadlines for your situation.
Voluntary registration
You can register for VAT even if your turnover is below £90,000. Some tradespeople do this because most of their customers are VAT-registered businesses, like contractors or letting companies, which can reclaim the VAT. Registering means you can reclaim VAT on your own business costs too.
It's usually a bad fit if most of your customers are homeowners, because VAT makes your prices 20% higher for people who can't reclaim it.
VAT rates
GOV.UK lists three main rates:
- Standard rate: 20% for most goods and services
- Reduced rate: 5% for some goods and services, such as children's car seats and home energy
- Zero rate: 0% for zero-rated goods and services, such as most food and children's clothes
Most trade work is standard rated at 20%, but some types of work are charged differently. If you're unsure about a specific job, check the GOV.UK VAT rates page or ask an accountant.
What changes on your invoices
Once you're registered, your invoices need to:
- show your VAT registration number;
- show the VAT separately from the price;
- show the VAT rate and the total including VAT.
If both you and your customer are VAT-registered, you need to issue a VAT invoice. In our generators, tick "Add VAT", check the rate and add your VAT number, and the invoice is laid out correctly.
Never charge VAT if you're not registered. If you're not registered, leave the VAT box unticked.
Construction and the reverse charge
If you're a VAT-registered subcontractor working for VAT-registered contractors under CIS, the VAT domestic reverse charge probably applies. Your invoice shows the VAT but doesn't add it to the total, because the contractor pays it to HMRC. Use our reverse charge invoice for this.
Ready to make one? Free, no sign-up, and your details stay on your device.
Frequently asked questions
Is the VAT threshold based on profit or turnover?
Turnover, meaning your total taxable sales before expenses.
Can I charge VAT before I'm registered?
No. Only VAT-registered businesses can charge VAT.
What if I go over the threshold by accident?
Register as soon as you notice. The GOV.UK registration pages explain what to do if you're late, and an accountant can help you sort out any VAT due.
This guide is general information, not tax or legal advice. Rules change, so check GOV.UK for the latest position.