VAT For Sole Traders – Everything You Need To Know
Tradespeople have lots on their shoulders when it comes to running a business, and VAT is one of the more difficult things to wrap your head around.
A lot of the confusion stems from the fact that VAT isn’t a blanket requirement for all businesses in the UK. Larger businesses will have teams handling their accounting and tax, and you’re probably used to seeing VAT on your restaurant receipts, online shopping, and much more. But, since there’s no immediate requirement to register for VAT until your business meets certain criteria, which can be troublesome for smaller businesses and especially sole traders.
In this guide, we’ll provide a comprehensive overview of VAT and offer practical advice for sole traders that want to cause the least chaos as their business continues to grow.
Want to cut to the chase? Click here to learn more about when sole traders should register for VAT.
Skip ahead to a specific section:
An introduction to VAT: Is it necessary for sole traders?
In short, VAT (or Value Added Tax) is a tax added to most goods and services in the UK, which businesses collect from customers and pass on to the government. It’s added at each stage of business, but being VAT registered means you can claim back any VAT you’ve been charged before it’s eventually paid by the consumer.
For sole traders, VAT can feel like a complex and unnecessary headache—especially if your turnover is below the threshold and you’re mainly selling your labour (in other words, not being charged VAT by another business). Many try to delay the process as long as possible to keep their prices lower for their customers (and therefore be more competitive in the market) or to turn a higher profit.
This can be a valid strategy for a while. However, depending on the nature of your business, your annual turnover can quickly exceed the limit. As of 2025, you must register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period. This is the main reason VAT is necessary for sole traders. Below this limit, VAT is a voluntary—and potentially advantageous—decision. Understanding how VAT applies to your business will help you make the right move.
What are the current VAT rates?
VAT isn’t a one-size-fits-all tax—different goods and services are taxed at different rates. Here’s a quick breakdown of the current VAT rates in the UK:
- Standard rate (20%) – This applies to most goods and services, including tools, materials, and general business expenses. As a sole trader, the vast majority if not all of your goods/services will fall under this category.
- Reduced rate (5%) – A lower rate for specific products, such as home energy, mobility aids for the elderly, and children’s car seats.
- Zero-rated (0%) – Some items, like most food, children’s clothing, and books, are taxed at 0%.
What are the benefits of being VAT-registered as a sole trader?
Being VAT registered means you have to charge your customers VAT at the appropriate rate. Unless you’re willing to absorb this cost, it will mean your prices need to go a little higher. This sounds bad, but remember that all other sole traders with a similar turnover are on the same playing field. There’s are also two main benefits to being VAT-registered as a sole trader:
- It makes you look more professional — Customers are more likely to trust a business that’s VAT registered, even if it means paying a little more.
- You get to claim back VAT on business expenses — Anything you buy for your business, be it materials or services, will have VAT applied. If you’re VAT-registered, you get to recoup these costs.
When should a sole trader register for VAT?
As we’ve mentioned, it’s a legal requirement to register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month rolling period. At this point, you have 30 days to register.
In addition to this, if you believe your turnover will exceed the same limit in the near future, you should get VAT registered immediately.
However, you’re also able to register for VAT early and at any point if you believe it may be beneficial for your business—or just easier for your accounting. You may choose to do this if:
- You want to avoid the hassle of needing to check your rolling turnover figure and avoid any potential fines or fees for not registering on time
- You work with other VAT-registered businesses. For example, a heating business might frequently be buying new gas boilers for their customers and want to claim back VAT, rather than not being able to pass on the cost.
- You don’t want to have to increase your prices by 20% just to break even, once becoming VAT-registered.
How to register for VAT as a sole trader in the UK
Registering for VAT is a straightforward process that can be done online through HMRC. Here’s a step-by-step guide to getting set up.
1. Register Online with HMRC
The easiest way to register for VAT is through the HMRC website. However, you can also register by post using the VAT1 form—although this takes longer.
2. Information You’ll Need to Register
Before starting your application, make sure you have:
- Your Unique Taxpayer Reference (UTR) – This is your 10-digit number from HMRC.
- Your business details including name, address, and legal structure (as a sole trader, this can simply be ‘sole trader’).
- Your estimated turnover – You’ll need to confirm whether you’re presently over or under the VAT threshold (£90,000).
- Details about your business activities – A brief description of what you do.
- Bank account details – If you want HMRC to pay any VAT refunds directly to your account.
3. What Happens After You Apply?
Once you’ve submitted your application:
- You’ll receive a VAT number – Usually within 10–30 working days, though it can take longer if HMRC needs extra checks.
- Your VAT registration certificate (VAT4) will arrive via your online account or by post.
- You must start charging VAT from your effective registration date, even if your certificate hasn’t arrived yet.
If your VAT number hasn’t arrived within 30 working days, contact HMRC for an update. Sometimes, HMRC may request more details, such as invoices or proof of business activities, before approving your registration.
What you need to do when you’re VAT registered
As soon as you’re VAT-registered, you need to start charging your customers VAT, submit VAT returns, and keep good records of all this. Here’s a run-through of everything you need to be doing:
1. Include VAT on your quotes and invoices
As a tradesperson, it is highly likely that most, if not all, of the products or services you sell fall under the standard VAT rate of 20%. However, double check that no exceptions apply for your specific trade or business.
How to include VAT on your quotes and invoices:
Any VAT charges must be shown on your invoice, and should be broken down separately.
For example, if your invoice totals £120 of work, you’ll need to add on 20% (£24) for VAT, showing them separately and as a total of £144.
And, as a VAT-registered business, you are required to display your VAT registration number on your invoice.
2. Keep good VAT records
Any invoice issued after becoming VAT-registered should be filed and reported. When you come to fill out your VAT return, this offers peace of mind and ensures everything is easy to find.
These records should be kept for a minimum of 6 years in case your business gets asked for an audit.
Generating invoices with FieldRocket is a quick and easy way to issue VAT-compliant invoices and keep your accounts organised. Try FieldRocket for free today.
3. File your VAT returns & paying VAT
Unlike regular tax, VAT returns are filed every 3 months by default — which is known as your ‘VAT return period’. This can change if you choose to become part of a VAT scheme (more on that later).
Nowadays, VAT returns need to be submitted through HMRC’s VAT online service. Here, you can declare the amount of VAT you’ve charged and the amount you’ve paid.
The deadline for submitting VAT returns and making any payments due is usually one month and seven days after the end of the VAT period. For example, if your VAT period ends on March 31st, you must file and pay by May 7th.
As a quick summary, once registered, you need to:
Charge VAT on sales at the correct rate and issue VAT invoices.
Submit VAT returns (usually every three months).
Pay any VAT owed to HMRC or claim back VAT on business expenses.
Keep VAT records for at least six years.
What can you claim VAT back on?
Understanding what you can claim VAT back on can save you a pretty penny each time you submit a return. Watch out for:
- Your inventory & stock — things like new boilers for your customers, raw building materials, water tanks, etc.
- Office equipment
- Van repairs and purchases
- Utilities
- Accounting services
- Marketing and advertising
If you use part of your home for your business, you can still claim back VAT on related expenses as long as you can prove it is solely for business use. With mixed-use expenses, such as your mobile phone, you can claim back a fair portion of the cost.
Should you join a VAT scheme?
VAT schemes can be a great way for sole traders to simplify their VAT process. All are voluntary to join.
VAT Flat Rate Scheme
As a sole trader, you would most likely be looking at the VAT Flat Rate Scheme, which allows you to work out the VAT you owe as a percentage of your gross turnover. This scheme means far less bookkeeping and is eligible for businesses with a turnover of £150,000 or less excluding VAT.
Different types of businesses will have different flat rates set by HMRC. You can find out your specific fat rate by following this link to their website: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
While the main benefit of the flat rate scheme is simplicity, you also lose the ability to claim back VAT, except for certain costs over £2,000. Depending on the nature of your business, you may end up being charged more or less through this scheme.
Other VAT schemes
- VAT annual accounting – Complete one VAT return each year instead of 4.
- VAT Cash Accounting Scheme – Pay VAT when your customer pays you, not when you issue an invoice.
Create, sign, and send all your industry certificates with FieldRocket
Looking for a way to simplify your paperwork? FieldRocket offers customisable, professional & paperless certificates and forms for all trades.
Get started with a 7-day free trial by clicking below.
VAT FOR SOLE TRADERS
Frequently Asked Questions
Do you charge VAT on labour?
Yes. VAT is applicable to labour costs as long as you are VAT-registered. However, there are special rules for construction and subcontracting which may apply to your business.
What if your turnover drops below the VAT threshold?
Sole traders can deregister for VAT if their turnover falls below the current limit of £88,000.
Can a sole trader be VAT-registered?
Yes. VAT registration does not take into account business structure but rather turnover. If you are a sole trader, you must register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period. You can also register below this limit on an optional basis.
Can sole traders claim back VAT?
Yes! Provided the expense is business-related and you are VAT-registered, you’ll be able to claim back any VAT you pay.