When do tradespeople need to register for VAT?

Most tradespeople start out not registered for VAT. You have to register once your turnover goes over the VAT threshold, which is £90,000. Turnover means everything you charge customers, labour and materials, not your profit.

When you must register

• Looking back: if your taxable turnover for the last 12 months goes over £90,000. This is a rolling 12 months, not the tax year, so check it every month.
• Looking ahead: if you expect to go over £90,000 in the next 30 days alone, for example because a big job is about to be paid.

How long you have

You must register within 30 days of the end of the month you went over. Your VAT registration then starts on the first day of the second month after you went over. From that date you charge VAT on your invoices.

Register late and you still owe VAT on the sales you made since you should have registered, even though you didn’t charge it, and you may get a penalty too. That can wipe out a lot of profit, so keep an eye on your rolling total.

Registering before you have to

You can register voluntarily below £90,000. It means you can claim back VAT on materials, tools and your van, but you have to add VAT to your prices. That suits you if most of your customers are VAT registered businesses who claim it back. For work for homeowners, it usually makes you 20% dearer than an unregistered competitor.

The Flat Rate Scheme

Small businesses with taxable turnover of £150,000 or less can join the Flat Rate Scheme. You still charge customers VAT at the normal rate, but pay HMRC a fixed percentage of your VAT-inclusive turnover and can’t usually reclaim VAT on what you buy.

You’re a limited cost business if what you spend on goods is less than 2% of your turnover, or less than £1,000 a year. Labour-only trades are often caught by this. You get 1% off your rate in your first year of VAT registration.

The construction reverse charge

If you’re VAT registered and do construction work under CIS for a VAT-registered contractor, the domestic reverse charge usually applies. You don’t add VAT to the bill. Instead your invoice says the reverse charge applies, and the contractor accounts for the VAT. It doesn’t apply when the customer has told you in writing they’re the end user. See CIS for subcontractors.

If your turnover drops

If your taxable turnover falls below £88,000, you can choose to cancel your registration.

How Kev helps

Add your VAT number in Kev and new invoice and quote lines start at 20% VAT, with 5% and 0% available too, and Kev adds up the VAT for you. Expenses keep the VAT separate, and on Kev Pro the receipt scanner reads it off the receipt. Kev doesn’t file VAT returns, so your accountant or VAT software still does that part.

Sources

• gov.uk: Register for VAT
• gov.uk: VAT thresholds
• gov.uk: VAT Flat Rate Scheme, how much you pay
• gov.uk: VAT reverse charge if you supply building and construction services