Registering for VAT as a Sole Trader
-
There are a number of benefits of registering for VAT if you’re a sole trader – but these can come with some added paperwork. We will take you through the logistics of VAT registration, the key benefits for sole traders, what to consider for taxable turnover, and how to register – helping you to make an informed decision.
Contact us today for a free, zero-obligation consultation.
Can a sole trader be VAT-registered?
Yes, sole traders can register for VAT. Usually, the threshold for VAT is a turnover of £90,000. Many sole traders might not yet have hit that threshold. However, voluntary VAT registration is an option and offers several advantages.
Benefits of being a VAT-registered sole trader
• Claim back VAT on business expenses. You can reclaim VAT on things you’ve bought for the business – even purchases made up to four years before you registered, as long as they’re still in use.
• Credibility. Registering voluntarily can make your business more credible to potential customers, which is useful if you’re pitching to clients who expect VAT numbers on invoices.
• Avoid penalties. If you’re getting close to the threshold, registering early means no surprises. You can also avoid rushed admin and potential penalties down the line.
• Win better clients. Some clients only work with VAT-registered suppliers. Having a VAT number on your website could help you land bigger contracts.
Drawbacks of Sole Trader VAT Registration
• You may have to charge more. Once you’re registered, VAT (usually 20%) goes on top of your prices — regardless of whether your customer is a business or not. If your customer is not VAT-registered, that extra cost lands with them. That might make you look more expensive compared to competitors who aren’t registered.
• There’s more admin. You’ll need to issue VAT invoices properly, keep digital records, file quarterly returns using Making Tax Digital compliant software, and pay what you owe on time.
• Software transitions. If you’re not already using accounting software, you’ll need to start. Paper VAT returns are no longer accepted.
• Cash flow strain. You pay VAT to HMRC based on your invoices — even if your client hasn’t paid you yet. If that’s a problem, the cash accounting scheme might be a better fit (you pay VAT only once you get paid).
• Not all purchases are reclaimable. Items like client entertainment or anything partly personal often cannot be claimed. You’ll also need a valid VAT invoice to back up any claim.
• Pricing complications. If you’re selling to the public, you must make it clear whether your prices include VAT or not. Misunderstandings can lead to awkward chats or lost margins.
Should You Register For VAT Anyway?
Registering voluntarily can be a smart move if:
• Most of your clients are VAT registered.
• Your competitors are VAT registered.
• You spend a lot on VAT-rated goods/services and want to reclaim it.
• You want to appear more “established” and professional.
But if you sell mainly to the public and have low VAT-able expenses, it might not be worth it. At least, not just yet.
What is the Sole trader VAT threshold?
The current VAT threshold is £90,000 in annual turnover. You must register if:
- You expect to exceed this threshold in the next 30 days.
- Your actual turnover exceeds it over any rolling 12-month period. Not your financial year, just any 12-month window.
Keep tabs on your numbers every month. If you miss the deadline, HMRC can backdate your registration and charge interest or penalties.
How to register for VAT as a sole trader
Registering for VAT as a sole trader is a straightforward process, but it’s important to understand what you need, when to do it, and what happens next.
1. Check if You Need to Register
You must register if your VAT-taxable turnover goes over £90,000 in any rolling 12-month period, or if you expect your turnover to exceed £90,000 in the next 30 days alone.
2. Prepare What You’ll Need
• Government Gateway user ID and password. Create one if you don’t have it.
• National Insurance number.
• Details of your business activities.
• Business bank account info.
• Date you want your VAT registration to start from. Also known as ‘date of registration’.
3. Register Online
Go to the official HMRC VAT registration page and follow the steps to register as a sole trader. HMRC will create a VAT online account for you – also known as a Government Gateway account – if you haven’t already got one.
4. Wait for Your VAT Number
Once registered, HMRC will send you a VAT registration certificate, usually within 2 weeks. You’ll get your VAT number, your date of registration, and instructions on when and how to file your first VAT return. You can’t charge VAT until you’re registered, but you may need to raise VAT-inclusive invoices from your effective date, so keep records and update customers if needed.
5. Set Up Your VAT Records
Once registered, you must start charging VAT on eligible sales, record VAT on all purchases and sales, file VAT returns – usually quarterly – using Making Tax Digital (MTD)-compatible software, and of course, pay any VAT due to HMRC on time.
6. Get Support If You’re Unsure
VAT management can be tricky, especially when dealing with reverse charges, exemptions, or partial business/personal use. That’s where an accountant can help make sure you stay compliant and claim back what you’re entitled to.
What Counts Towards Your Sole Trader Taxable Turnover?
Your VAT-taxable turnover is more than just what you invoice. Here’s what to include:
• Zero-rated goods: These are VAT-taxable at 0%, so they still count. Think food and drink, children’s clothing, or books.
• Reduced-rated goods: These attract a 5% VAT rate. Examples include insulation work, domestic energy, or mobility aids.
• Standard-rated goods: Most goods and services fall into this 20% category. Office supplies, consultancy, retail items and trades work are all included.
• Goods you’ve hired out or loaned: If you’ve let customers borrow or rent items, that’s VAT-relevant too.
• Business goods used personally: If you take business stock or equipment for personal use – for example, using a company laptop at home – it still counts towards your turnover.
• Bartered, swapped, or gifted items: VAT applies even if no money changes hands. Gifts and part-exchanges such as swapping design services for photography, need recording.
• Overseas services you reverse charged: If you’ve had services from abroad and applied the reverse charge rule, those belong on your return – think paying for software development from an EU provider or hiring a US-based consultant.
• Domestic reverse charge supplies: Often applies to construction. For example, a subcontractor invoicing a main contractor shifts the VAT responsibility.
• Construction work over £100,000: If your business carries out major construction work for itself — like building or extending your own premises — it counts towards your taxable turnover, even if you don’t invoice anyone. If the total value of labour and materials exceeds £100,000, it needs to be included.
Streamline your VAT registration with Mollan & Co.
Whether you’re approaching the threshold or thinking ahead, understanding the pros and cons of VAT registration is key to running your business smoothly.
At Mollan & Co., we offer practical, straight-talking advice to help sole traders stay compliant, save money, and avoid costly mistakes. From registration to reclaiming VAT and beyond, we’re here to help you every step of the way.
Contact Mollan & Co. today for a free, zero-obligation consultation and let’s make VAT work for your business.
FAQs
Can sole traders claim back VAT?
Yes. If you’re registered for VAT, you can reclaim VAT on most business-related goods and services you buy, even as a sole trader. This includes tools, stock, subscriptions, equipment, and even some business-related travel costs.
Is the first £85,000 VAT free?
Not exactly. The £90,000 threshold (formerly £85,000) is just the point at which VAT registration becomes compulsory.
- You don’t get a tax-free “allowance.”
- Once you cross the threshold (or expect to in the next 30 days), you must register and start charging VAT on all taxable sales from that point onward—not just the amount above the threshold.
Is it worth voluntarily registering for VAT?
It depends on your business. Voluntary registration can be a smart move if:
- Your clients are mostly VAT-registered and can reclaim VAT.
- You spend a lot on VAT-rated goods or services.
- You want to appear more established or grow your business.
But if you mostly sell to the public or small businesses who can’t reclaim VAT, you might end up charging more and becoming less competitive. It’s about balancing the potential savings with how it affects pricing and admin.
How much does it cost to be VAT registered?
There’s no fee to register for VAT, but there are ongoing admin and software costs to consider:
- You’ll need MTD-compatible accounting software (like Xero or QuickBooks).
- There may be accountant fees if you’d like support filing VAT returns.
- Late filings or incorrect returns can lead to HMRC penalties.
So, while registration itself is free, managing VAT properly does come with responsibilities and potential costs.
Author ProfileI'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.
I developed valuable skills in commercialisation through my work in the science and technology department at the Scottish University. Then, in 2002, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.
I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.
Our success at Mollan & Co is directly related to the success of our clients.
