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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?

What happens after I register for VAT?

How does VAT work?

VAT rates

What do you need to do to charge VAT as a sole trader?

VAT for sole traders with more than one business

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.

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.

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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.

Value Added Tax is charged on goods and services sold by companies. They’re known as “taxable supplies”. You can only charge VAT on taxable supplies, and only if you are VAT registered.

Being VAT registered also enables you to reclaim any VAT you’ve paid on purchases for your business. In some instances you may be able to reclaim VAT that you paid before registering.

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).

We have our very own bookkeeping software which is compliant for Making Tax Digital for VAT (so you can use it to make your submissions!). Learn more about Pandle in our free guide.

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%.

VAT Zero-rate

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

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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%. Paying your VAT bill can affect how much profit you make on each sale, so you might need to think about your pricing as a result of registering for VAT. Some people add VAT to the existing price, whereas others will absorb the cost, or land somewhere between the two.

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.

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.

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

About The Author

Beth-Anne Bruce

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.

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Yolanda Rouse
Yolanda Rouse
24th June 2017 4:22 pm

Well said that Vat is charged on Good and Services sold to customers. One thing in which i will agree with you is that if some one has paid less Vat to HMRC then heshe should pay the difference to HMRC and If some one has paid more VAT to HMRC then heshe can claim it back from any company which offer

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