VAT Registration Threshold: When Should Tradespeople Register?

The VAT registration threshold for the 2025/26 tax year is 90,000 pounds. This means you must register for VAT if your taxable turnover exceeds 90,000 pounds in any rolling 12-month period, or if you expect it to exceed 90,000 pounds in the next 30 days alone. The threshold was increased from 85,000 pounds from 1 April 2024, the first increase in several years.\n\nTaxable turnover means the total value of goods and services you supply that are not exempt from VAT. For most tradespeople, virtually all of your work is taxable at the standard rate of 20 percent, with some exceptions such as certain energy-saving installations in residential properties which may qualify for reduced rates. Your turnover for this purpose is your total sales before deducting any expenses.\n\nYou need to monitor your turnover continuously, not just at the end of each tax year. HMRC uses a rolling 12-month test, meaning you must check at the end of every month whether your total turnover for the preceding 12 months has exceeded the threshold. If it has, you must register within 30 days and your registration takes effect from the start of the second month after the threshold was exceeded.\n\nFor example, if your rolling 12-month turnover first exceeds 90,000 pounds at the end of September 2025, you must notify HMRC by 30 October 2025, and your VAT registration will take effect from 1 November 2025. From that date, you must charge VAT on your invoices and submit VAT returns. TradeTally monitors your rolling turnover and alerts you when you are approaching the threshold.

Mandatory registration occurs when your turnover exceeds the threshold as described above. You have no choice in this situation and must register. However, you can also register voluntarily at any time, even if your turnover is well below the threshold. Voluntary registration can be advantageous in certain circumstances.\n\nThe main benefit of voluntary registration is that you can reclaim VAT on your business purchases. If you spend heavily on materials, tools, vehicle costs, and other taxable supplies, the VAT you reclaim can be significant. For a plumber spending 30,000 pounds per year on materials and van costs, the VAT reclaim would be approximately 5,000 pounds per year. This improves your cash flow, though you must charge VAT to your customers in return.\n\nThe disadvantage of voluntary registration is that you must add 20 percent VAT to your invoices, which can make you more expensive than non-VAT registered competitors. For work on residential properties where the homeowner cannot reclaim VAT, your effective price is 20 percent higher. For commercial work where the customer is VAT registered and can reclaim the VAT you charge, there is no net cost impact and the customer is indifferent.\n\nThe decision depends on your customer base and expense levels. If most of your work is for VAT-registered businesses or main contractors, voluntary registration is usually beneficial. If most of your work is for homeowners, the 20 percent price increase may lose you business unless you absorb the VAT by reducing your margins, which defeats the purpose.

Once registered, you can choose from several VAT schemes. The standard scheme requires you to account for the actual VAT on each transaction, charging VAT on your sales and reclaiming VAT on your purchases. The difference is paid to or reclaimed from HMRC each quarter. This gives the most accurate result but requires detailed record-keeping.\n\nThe Flat Rate Scheme is designed to simplify VAT for small businesses with turnover up to 150,000 pounds excluding VAT. Instead of accounting for VAT on each transaction, you pay a fixed percentage of your gross turnover to HMRC. The percentage varies by trade: general building at 9.5 percent, plumbing at 9.5 percent, and electrical work at 9.5 percent are typical rates. You still charge 20 percent VAT on invoices but pay a lower flat rate to HMRC, potentially keeping the difference.\n\nHowever, on the Flat Rate Scheme you cannot reclaim VAT on purchases except for capital goods costing over 2,000 pounds including VAT. For tradespeople who spend heavily on materials, this can make the Flat Rate Scheme less advantageous than the standard scheme. Carefully compare the two by calculating your actual VAT position under both schemes for a typical quarter before deciding.\n\nThe Cash Accounting Scheme lets you account for VAT based on when you receive payment rather than when you issue invoices. This helps cash flow if you have customers who pay slowly, as you do not have to pay VAT to HMRC until you have received it from the customer. The scheme is available for businesses with taxable turnover up to 1.35 million pounds and can be combined with either the standard or flat rate approach.

VAT-registered businesses must submit quarterly VAT returns and pay any VAT due to HMRC. Returns are due one month and seven days after the end of each VAT quarter. Since April 2022, all VAT-registered businesses, regardless of turnover, must keep digital records and submit VAT returns through Making Tax Digital-compatible software.\n\nYour VAT return summarises the VAT you charged on sales and the VAT you paid on purchases for the quarter. The difference is either paid to HMRC if you collected more than you spent, or reclaimed if your purchases exceeded your sales. Most tradespeople pay VAT to HMRC each quarter, as their sales typically exceed their VAT-able purchases.\n\nAccurate record-keeping is essential. Every VAT invoice you issue and every VAT receipt you hold must be recorded in your digital records with the correct VAT treatment. Common errors include failing to record VAT on fuel purchases, missing VAT on small cash purchases where no VAT receipt was obtained, and incorrectly zero-rating or exempting supplies that should be standard-rated.\n\nTradeTally is MTD-compatible for VAT and can submit your VAT returns directly to HMRC. As you record invoices and expenses throughout the quarter, the app calculates your running VAT position so you know what you will owe before the return is due. The submission process is a few taps on your phone, and HMRC confirms receipt electronically.