When and how to register for VAT as a sole trader

Value Added Tax (VAT) is a tax added to most products and services sold by VAT-registered businesses. Here is a simple guide to when you must register and what it means for your business.

The Mandatory Registration Threshold

You must register for VAT if your VAT-taxable turnover goes over £90,000 in a rolling 12-month period.

Notice the words "rolling 12-month period". This does not mean the tax year (April to April) or your accounting year. It means looking back over the last 12 months at the end of every single month. If, at the end of July, your total sales from the previous August to July exceed £90,000, you must register.

Voluntary Registration

You can register for VAT voluntarily even if your turnover is under £90,000. Why would you do this?

• To reclaim VAT: If you buy a lot of equipment or services that include VAT, you can claim that VAT back from HMRC.
• B2B perception: If all your clients are other VAT-registered businesses, they won't mind you adding VAT to your invoices (because they just claim it back), and having a VAT number can make your business look larger and more established.

What happens when you register?

Once registered, you must:

1. Add VAT (usually 20%) to the prices of your eligible goods or services.
2. Keep digital records of your sales and purchases using Making Tax Digital (MTD) compatible software.
3. Submit a VAT Return to HMRC, usually every 3 months.
4. Pay any VAT you owe to HMRC (the VAT you charged customers minus the VAT you paid on business purchases).

Deregistration

If your turnover falls below £88,000, you can ask HMRC to cancel your VAT registration.