VAT isn’t something every new sole trader needs to think about immediately.
But as your business grows, it’s a tax you can’t afford to ignore.
Once your turnover reaches a certain level, you may have to register for VAT, start charging it on your sales and submit regular VAT Returns to HMRC.
Some businesses even choose to register voluntarily before they reach the threshold.
What is VAT?
VAT (Value Added Tax) is a tax charged on many goods and services sold in the UK.
VAT-registered businesses collect VAT from their customers and pay it to HMRC, usually every quarter. They can also reclaim VAT paid on many business purchases.
How does VAT work?
VAT works in two directions.
You charge VAT when you sell your goods or services, and you pay VAT when your business buys goods or services from other VAT-registered suppliers.
The difference between the VAT you’ve collected and the VAT you’ve paid is either paid to HMRC or reclaimed.
For example, if you collected £800 in VAT from customers but paid £500 in VAT on business purchases, you would normally pay HMRC the £300 difference.
If the opposite happens, you may be due a VAT refund.
Do I need to register for VAT?
Any business with taxable turnover of £90,000 or more over the previous 12 months must register for VAT (from April 2026).
This applies regardless of your business structure. If you’re a sole trader and exceed the threshold, you normally have to register and begin charging VAT.
You should also register if you expect your taxable turnover to exceed £90,000 within the next 30 days.
If you’re unsure how the rolling 12-month calculation works, read our guide to the VAT registration threshold.
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Should you voluntarily register for VAT?
You don’t always have to wait until you reach the threshold.
Many sole traders choose to register voluntarily because it allows them to reclaim VAT on business purchases.
It can also make a business appear more established, particularly when dealing with larger commercial customers.
On the other hand, if most of your customers are members of the public who cannot reclaim VAT, registering for VAT could make your prices less competitive.
We look at the pros and cons in more detail in our guide to VAT registration for small businesses.
How do I register for VAT?
Most sole traders can register online using HMRC’s VAT registration service.
You’ll normally need:
- Your National Insurance number.
- Your Unique Taxpayer Reference (UTR).
- Your expected turnover.
- Your business contact details.
- Your business bank account details.
If you have an accountant, they can usually complete the registration on your behalf.
What happens after you register?
HMRC will normally issue a VAT registration certificate within 30 working days.
This confirms your VAT number, your effective date of registration and when your first VAT Return is due.
Effective from this date, you must begin charging VAT where appropriate.
If your circumstances change later, you don’t necessarily have to remain VAT registered forever.
Our guide to cancelling your VAT registration explains when you can deregister and what happens afterwards.
Charging and reclaiming VAT
Once you’re VAT registered, you’ll need to:
- Charge the correct rate of VAT.
- Issue VAT invoices where required.
- Include your VAT number on invoices.
- Keep accurate VAT records.
- Submit VAT Returns on time.
You can normally reclaim VAT on business purchases, provided you have a valid VAT invoice.
If you’re using the Flat Rate Scheme, different rules apply. Read our guide to the VAT Flat Rate Scheme.
What makes a VAT invoice valid?
To reclaim VAT, an invoice should include:
- The supplier’s VAT number.
- The total amount charged, including VAT.
- The invoice date.
- A description of the goods or services.
- The supplier’s name and address.
You can verify a VAT number using HMRC’s VAT number checker.
Current VAT rates
The three main VAT rates are:
- 20% – Standard rate (most goods and services).
- 5% – Reduced rate (for example, domestic energy).
- 0% – Zero rate (including most food, books and children’s clothing).
Not everything is charged at the standard rate, so it’s worth checking the correct treatment if you sell less common goods or services.
Submitting VAT Returns
Most VAT-registered businesses submit VAT Returns every quarter.
Returns must normally be filed digitally using Making Tax Digital (MTD) compatible software.
The filing deadline is usually one month and seven days after the end of the VAT period.
Most accounting packages, including FreeAgent and Xero, support digital VAT submissions.
Extra tips for sole traders
- Set aside the VAT you collect rather than treating it as income.
- Keep digital copies of invoices and receipts.
- Consider the VAT Flat Rate Scheme if it suits your business.
- If your turnover falls or you stop trading, review whether you still need to be VAT registered. Our guide to cancelling your VAT registration explains when you can deregister.
- If you’re unsure about VAT, speak to your accountant before making decisions.
