Does a Sole Trader Need to Register for VAT?

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, so you may need to become VAT registered whether you’re a sole trader, a limited company, or something else.

When do I have to register for VAT?

If your turnover in any 12-month time period is more than the £90,000 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.

Some businesses decide to register for VAT voluntarily before reaching the threshold because this is more tax efficient for them, but it’s entirely optional until then.

What happens after I register for VAT?

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.

Registering for VAT might also have an impact on how much profit you make on sales, so this can affect what you charge to your customers after VAT registration.

How does VAT work?

Value Added Tax is charged on taxable goods and services (known as “taxable supplies”) which are sold by VAT-registered businesses, and then passed on to HMRC when you submit your VAT return. Being VAT registered also means that you can reclaim any VAT you’ve paid on purchases for your business.

You will need to submit VAT returns to HMRC so they know how much you need to pay (or how much they should refund you).

• If you’ve charged more VAT on sales to your customers than you’ve paid to suppliers, you will have to then pay the difference to HMRC
• If, on the other hand, you’ve paid more than you charged, you’re able to claim this back from HMRC

You’ll need to keep VAT records which comply with Making Tax Digital rules for record-keeping, and use special software to submit your return to HMRC (we provide all our clients with free access to Pandle Pro, but we’ll work with you on whichever software you prefer).

How do I charge VAT as a sole trader?

The first step is working out which rates of VAT apply to the products and services you sell, so that you charge the correct amount on your sales.

You’ll need to show this information on your customer’s invoice (and receipt, if you issue one), and record it in your accounting so you can submit your VAT return.

Which VAT rate should I use?

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 once you become registered.

VAT Reduced rate

Some goods, such as children’s car seats or domestic energy, fall into the reduced VAT rate category of 5%.

VAT Zero-rate

Some goods are subject to VAT but at 0%, such as food, books, and clothing for children. Zero-rated items are still taxable despite the 0% charge, so you’ll still need to record these in your VAT accounts, and submit them to HMRC in your VAT Return.

This rate also applies to most goods that you export, including to the EU.

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. It’s important to make sure you can demonstrate any division between businesses to avoid falling foul of VAT disaggregation rules!

Talk to one of the team about our sole trader accountancy services by calling 020 3355 4047, or get an instant online quote.