Do You Need to Register for VAT?

You must register for VAT once your taxable turnover exceeds £90,000 in any rolling 12-month period. This isn't your profit — it's your gross turnover from VAT-taxable supplies. Once you hit the threshold, you must register within 30 days.

You can also register voluntarily below the threshold. This makes sense if:

• Most of your clients are VAT-registered businesses who can reclaim your VAT charges

• You incur significant VAT on your own business purchases and want to reclaim it

• You want to appear more established to corporate clients

It doesn't make sense if most of your clients are individuals or small non-VAT-registered businesses — they can't reclaim VAT, so your prices effectively become 20% more expensive to them.

What a Valid VAT Invoice Must Include

Once VAT registered, every invoice you send to a VAT-registered client must be a valid VAT invoice. Missing any of the required fields means your client can't reclaim their input VAT — which they won't be happy about. A valid VAT invoice must include:

• The words "VAT Invoice" — or clearly indicate it's a tax invoice

• Your business name and address

• Your VAT registration number (formatted as GB followed by 9 digits)

• The invoice date

• The tax point date (if different from the invoice date)

• A unique sequential invoice number

• Your client's name and address

• A description of the goods or services supplied

• The quantity and unit price (for goods)

• The VAT rate applied

• The amount excluding VAT

• The VAT amount

• The total amount including VAT

Understanding the Tax Point

The tax point — also called the time of supply — determines which VAT period a transaction falls into. It's not always the same as the invoice date.

The basic tax point is:

• For services: the date the service was completed

• For goods: the date the goods were delivered

The actual tax point can be moved:

• Earlier: If you raise an invoice or receive payment before the basic tax point, the earlier date becomes the tax point

• Later: If you raise an invoice within 14 days after the basic tax point, the invoice date becomes the tax point

For most sole traders doing straightforward service work, the invoice date and the tax point will be the same. But it's worth understanding for jobs that span VAT quarters.

VAT Rates: Which One Applies to You?

Most sole traders in trades and professional services charge at the standard rate of 20%. But it's worth checking whether your specific work qualifies for the reduced rate (5%) or zero rate (0%).

Reduced rate (5%) applies to some areas relevant to tradespeople:

• Installing energy-saving materials in residential properties

• Converting a property into a different number of dwellings

• Renovating or altering an empty property that's been empty for 2+ years

Zero rate applies to some construction work — primarily new residential builds. If you're a subcontractor on a new build, check whether your work qualifies.

If you apply the wrong rate — charging 20% when 5% applies, for example — you've collected too much VAT and need to correct it. Getting it wrong in the other direction means you've undercharged and owe the difference to HMRC.

The Flat Rate Scheme

The Flat Rate Scheme (FRS) is a simplified VAT accounting method available to businesses with a VAT-exclusive turnover under £150,000. Instead of calculating VAT on every transaction, you pay HMRC a fixed percentage of your gross turnover — the percentage depends on your trade sector.

Under FRS, you still charge clients 20% VAT on your invoices. But you pay HMRC a lower flat rate percentage — the difference is yours to keep. The downside: you can't reclaim VAT on most purchases.

FRS can simplify your accounting significantly if you have low VAT-able expenses. Run the numbers with your accountant before joining — it's not always beneficial.

Reclaiming VAT on Business Purchases

Once VAT registered, you can reclaim VAT on goods and services you buy for your business — tools, materials, software, equipment, professional fees. You need a valid VAT invoice from the supplier to reclaim it.

You cannot reclaim VAT on:

• Business entertainment

• Cars (in most circumstances)

• Anything with a personal element — mixed-use purchases require apportionment

Submitting VAT Returns

VAT returns are due quarterly — HMRC will set your filing dates when you register. Under Making Tax Digital, you must submit returns digitally using compatible software. The deadline is 1 month and 7 days after the end of your VAT period.

Keep records of all VAT invoices issued and received for a minimum of 6 years. HMRC can inspect these records at any time.

If VAT feels like a lot to manage alongside running your business, a good invoicing tool handles the calculations automatically. Clervo applies the correct VAT rate, shows it as a separate line on every invoice, and keeps a digital record of every transaction — keeping you MTD compliant without the admin overhead.