The requirement to register for VAT depends on how much money your business makes in any 12 month period, rather than the type of business structure that you operate.
When do I have to register for VAT?
If you you reach the end of a month, and your annual turnover from the previous 12 months is more than the VAT registration threshold, then you must register for VAT. You should also register for VAT if you think you will go over the registration threshold within the next 30 days of trading.
Once you register for VAT, you will be sent a VAT registration certificate. This will have your VAT number on it, along with the submission deadline for your first VAT return. It will also have your “effective date of registration”. This is the date that you went over the threshold, or when you made a voluntary registration.
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There are three different rates of VAT and it’s up to you to make sure you’re charging the right amount appropriate to whatever it is you’re selling.
VAT Standard rate
The standard rate for VAT is 20% and this applies to most goods and services sold. It means that you must charge your customers 20% for goods or services. It’s important to think carefully about how you price your goods so that you’re still making a profit.
VAT Reduced rate
Some goods, such as children’s car seats or domestic energy, fall into the reduced VAT rate category. You’ll have to charge VAT at a rate of 5%.
Some goods have a zero percent VAT rate on them. This includes most food, books, and clothing for children.
Zero-rate tax doesn’t mean you don’t have to pay tax on it. The goods are still taxable at your end! It just means that you can’t charge your customers VAT on any goods or services where this rate applies. You will also still have to record these in your VAT accounts, and submit them to HMRC in your VAT Return.
This also applies to most goods that you export, including to the EU once the Brexit transition period ends. Read our guide to the VAT changes.
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What do you need to do to charge VAT as a sole trader?
The first step is working out which rates of VAT apply to your business and the goods you sell. This is so that you charge the right amount of VAT.
You must charge the correct amount, which in most cases will be 20%. This can affect how much profit you make on each sale, if you must pay your VAT bill. As a result, you might want to add VAT to your existing price.
You must also show the VAT information on your invoice to the customer and on your VAT Return to HMRC. You may be able to reclaim the VAT you’ve paid on goods or services related to these sales.
VAT for sole traders with more than one business
If you’re a sole trader, then there is no legal separation between you and your business. So, if you have multiple sole trader businesses, take all of your business income into account for VAT. This can affect the point at which you must register for VAT. It also means that VAT applies to VAT-taxable supplies across all of your businesses.
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About The Author
I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.