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Can a sole trader be VAT registered? Whether you need to register for VAT or not depends on your total turnover in any 12-month period, if it reaches the registration threshold (or about to), not on your business structure. So yes, you can register if you are a sole trader, and voluntarily even if your profits are far from the threshold—for many, this option is most advantageous.
The real question is, what are the pros and cons of being VAT registered as a sole trader? If you register, what are your responsibilities? Let’s explore more about your VAT obligations.
What Is a Sole Trader?
HMRC defines a sole trader as one who earns over £1,000 via self-employment in a year. Sole traders also pay Class 2 National Insurance for benefits or prove self-employment for tax-free childcare. Many choose sole proprietorship when they start working for themselves as it is the simplest structure.
Sole traders hold personal liability over their debts and are required to register for, file self-assessments, and pay income tax and NI when they exceed the annual trading allowance (still at £1,000 for 2025/26 tax year). Aside from these responsibilities, there’s Value Added Tax (VAT).
VAT requirements stay the same regardless of your business structure. But does a sole trader have to be VAT registered every time? Not necessarily. Check below if it’s mandatory for you.
Relevant read: What Being a Sole Trader Means
Who Needs to Be VAT Registered?
VAT registration is based on your 12-month turnover, not whether you are a sole trader or a limited company. You must register for VAT if your total taxable turnover:
- Was more than £90,000 in the previous 12 months.
- Is expected to go above £90,000 in the next 30 days.
The £90,000 threshold applies to any consecutive 12-month period, not just your accounting year. You can choose to register even if you earn less, especially if you want to claim back VAT on your business expenses.
On the other hand, you might be able to apply for a registration ‘exception’ if you temporarily go over the threshold and can prove your turnover will fall below £88,000 (also called the de-registration threshold) in the next 12 months.
Considerations for sole traders without UK establishments: Specific guidance applies to businesses based outside the UK. Read our simplified guide if you are a Non Established Taxable Person (NETP).
Should You Register for VAT?
It’s your business decision whether to register voluntarily. Here are some to consider if you plan to become VAT registered:
- Are you okay with detailed VAT bookkeeping, invoices, receipts, and submitting returns by the filing deadline?
- Do you buy a lot of goods and services from VAT-registered suppliers? If so, you can reclaim this VAT.
Learn more not just about the benefits of being VAT registered as a sole trader but also the disadvantages.
Pros of Being VAT Registered
Avoid Penalties
Registering for VAT beforehand prevents you from incurring fines for accidentally exceeding the VAT registration threshold.
Reclaim VAT on Purchases
Being VAT registered allows you to claim back VAT paid on goods and services bought for your business, which can be advantageous if you buy more VATable items than you sell (or sell mostly to VAT-registered businesses).
Retrospective VAT Claims
With goods, you can reclaim VAT paid on goods purchased up to four years before VAT registration (although conditions apply, such as continuous trading, VAT invoices, continued use). You can also reclaim VAT paid on business services purchased up to six months before VAT registration.
Attract VAT-Registered Clients
Many businesses prefer working with VAT-registered suppliers as they can reclaim the VAT they pay you.
Potentially Improved Cash Flow
Charging VAT means more money flows through your business (though you need to set aside the VAT portion for HMRC).
Enhanced Credibility
Having a VAT number can make your business appear more established and credible.
Cash Flow Management Schemes
If you are VAT-registered, you have access to schemes like the Cash Accounting Scheme (pay VAT only when customers pay you). Check our guide for various VAT schemes in the UK you can choose from.
Flat Rate Scheme
Having access to this option, you can simplify your VAT accounting, which can sometimes result in paying less VAT.
VAT Refunds (Exports)
Businesses exporting goods may be eligible for VAT refund.
Cons of Being VAT Registered
More Paperwork
Requires accurate VAT records, timely VAT return submissions, and payments.
Potential Negative Impact on Pricing/Profit
Registering for VAT might affect your profit on sales, so you may need to adjust your pricing for customers.
Potential for High VAT Bills
If your output VAT significantly exceeds your input VAT, you will owe a substantial amount.
Complex Rules
VAT regulations can be intricate, requiring careful understanding of what to charge and any exemptions.
VAT Inspections
VAT-registered businesses may be subject to inspections by tax authorities.
How Can You Register for VAT?
There are two main ways to register: online and postal (for specific cases). Most sole traders can register online via the HMRC website. The following, however, are required to register by post:
- EU-based businesses ‘distance selling’ to the UK.
- Businesses importing goods valued at over £90,000 from an EU country.
- Businesses disposing of assets with claimed 8th or 13th Directive VAT refunds.
Online registration is simple. Here are how:
- Sign up or log in to the HMRC online services with your Government Gateway ID.
- Navigate to ‘Get another tax, duty or scheme’ and select ‘VAT’.
- Follow the portal steps to complete your registration.
What Are Your VAT Responsibilities?
Once you are VAT-registered, you have several obligations to keep in mind:
Charge VAT on Sales
You need to determine the correct VAT rate for your products/services and charge the correct rate:
- Standard rate: 20% (most items)
- Reduced rate: 5% (e.g., children’s car seats, home energy)
- Zero rate: 0% (e.g., most food, children’s clothing)
VAT information (rate and amount) and your VAT number must be clearly shown on invoices and receipts. Be sure to record all VAT transactions in your accounting system.
Submit VAT Returns to HMRC
You also need to file VAT returns usually quarterly (every three months), with deadlines typically one month and seven days after the end of the VAT period. Even if you have no VAT to report in a period, you still need to submit a “nil” return. Know that late filing penalty applies.
Pay or Reclaim the Difference
If you charged more VAT on sales than you paid on purchases, you pay the difference to HMRC. Whilst if you paid more VAT than you charged, you can reclaim the difference.
Making Tax Digital Compliance
Your records must comply with Making Tax Digital (MTD) rules for record-keeping (digital). Be sure to use MTD-compatible software to submit your VAT returns to HMRC.
VAT on International Sales
Generally, EU countries do not charge UK VAT but need the customer’s VAT number, include it on invoices, and report it. Digital services to EU consumers may fall under VAT Mini One Stop Shop (MOSS) rules. Get help from VAT specialists if you need personalised guidance with EU VAT, as this is an intricate area of taxation.
Accurate Reporting
Incorrect VAT returns, even unintentional errors, can lead to penalties and VAT surcharges.
Adjust Pricing Strategy
Being VAT registered means you will likely need to increase your prices to include VAT, which may affect customers (especially private individuals).
Read relevant article: VAT Fraud: Scope, Penalties, VAT Rights, and Report Procedure.
Commonly Asked Questions
Do I need to charge VAT if I am self-employed?
Yes, you must charge VAT to customers once your self-employed earnings exceed the VAT registration threshold. This registration with HMRC becomes compulsory at that point.
How do I charge VAT as a sole trader?
First, determine the correct VAT rate (standard, reduced, or zero) applicable to your products or services. Then, clearly display this VAT amount as a separate item on your customer’s invoice or receipt and record it in your accounts for your VAT return.
Should VAT be charged on labour?
Yes, if you are a VAT-registered sole trader or will exceed the VAT threshold, you must charge VAT on your labour time. Labour is considered part of your service and is therefore subject to VAT.
Should VAT be included in a quote?
Ideally, yes, if you are VAT-registered and will charge VAT on the final cost, include it in your quotes. You can either calculate it or state “plus VAT” or “ex VAT” for clarity.
Do sole traders need to charge VAT?
Yes, once a sole trader is VAT-registered, they are required to charge VAT on most goods and services they provide. However, only VAT-registered entities can charge VAT and subsequently reclaim any VAT they incur on business expenses.
Get Support from VAT Specialists
Can a sole trader be VAT registered is not the question. It is, should you? It’s either mandatory or voluntary. Choosing to become VAT registered as a sole trader depends on your personal preference, especially if you are alright with handling additional administrative burdens.
Legend Financial’s VAT specialists are here to help. We liase with HMRC on your behalf, acting as your agent for preparing and submitting VAT returns. We have been helping a lot of sole traders for over a decade settle their tax obligations, especially VAT. Contact us today for personalised guidance.
