Do sole traders have to register for VAT?

As a sole trader, understanding the basics of VAT (Value Added Tax) is essential to ensure compliance with HMRC regulations . VAT is a tax charged on taxable goods and services sold by registered businesses. When you register for VAT, you become responsible for charging VAT on your own business sales and submitting quarterly returns to HMRC.

The requirement for VAT registration depends on the taxable turnover of your business, regardless of the type of business structure you operate with. If you are a sole trader with a taxable turnover in excess of £90,000 in any 12 month period it is mandatory to register for VAT, it is also possible to voluntarily register if your turnover is below the threshold.

There are various rates of VAT with the standard VAT rate in the UK currently set at 20%, but there are also reduced rates of 5% and 0% for specific goods and services. As a sole trader, it’s important to determine the appropriate VAT rate for the products or services you sell and ensure that you charge the correct amount on your sales invoices. This information should be clearly stated on your invoices and recorded in your accounting records for VAT reporting purposes.

The VAT registration threshold for sole traders is currently set at £90,000 in any 12 month period, not just per tax year. The structure of your business is irrelevant, regardless of if you operate as a sole trader or through a limited company, the threshold remains the same. It is important to keep a track of your rolling 12 month running total as registration is mandatory as soon as you cross the threshold, therefore knowing when you are approaching the threshold is vital in ensuring you remain compliant with HMRC. If you expect your turnover to exceed £90,000 in the next 30 days you must register before the end of the 30 day period.

As a sole trader you may also register for VAT voluntarily even if your turnover is below the threshold. There ae numerous reasons for voluntary registration especially for sole traders who provide most of their goods and services to firms that are VAT registered as they are able to claim the VAT back.

Registering for VAT as a sole trader is a relatively straightforward process.

To register for VAT, you need to complete an application through your online account on the HMRC website. You will be asked to provide information about your business, such as your business name, address, and nature of your activities. You will also need to provide details such as your National Insurance number, bank account details, Unique Taxpayer Reference (UTR) and details of your current annual turnover. If you do not want to register yourself then an agent, such as an accountant, can register you on your behalf as well as manage your VAT returns and necessary submissions.

Once your application is submitted, HMRC will review it and issue a VAT registration certificate. This certificate will contain your unique VAT number, which you must include on your invoices and other VAT-related documents. It is important to keep this certificate safe as it serves as proof of your VAT registration. Along with the VAT registration certificate, you will also receive information about your VAT return submission deadlines and the effective date of registration. The effective date is the date when you exceeded the registration threshold or the date of your voluntary registration. From this date onwards, you will be required to charge VAT on your sales and submit regular VAT returns to HMRC.

One of the main impacts of VAT registration is the potential increase in your tax bill. As a VAT-registered sole trader, you will need to charge VAT on your goods and services provided to clients and customers, which may affect your pricing and competitiveness. It’s crucial to consider the impact of VAT on your profit margins and adjust your prices accordingly if registering voluntarily. Unfortunately, if your turnover exceeds £90,000 you will have no choice but to register, although there could be scope for you to make tax savings in other ways such as incorporating your business and operating through a limited company rather than as a sole trader.

However, VAT registration also enables you to reclaim VAT on eligible business expenses, helping to reduce your spending on inputs which can help reduce your overall tax liability. You will have to keep track of VAT receipts for all eligible purchases and upload them into cloud accounting software to be able to claim back the VAT.

Another important aspect of VAT registration is the maintenance of accurate and up-to-date VAT records. As a VAT-registered sole trader, you will need to keep comprehensive records of your sales, purchases, and transactions that are eligible for VAT. You can do this through cloud accounting software such as Xero and FreeAgent which allows you to upload expenses and generate invoices on the go from your mobile phone or a laptop. Choosing the right software can be extremely helpful as not only can you track your cash flow and VAT receipts but they are also Making Tax Digital (MTD) compliant which is mandatory for submitting VAT returns.

At Sherwin Currid, we understand the complexities of VAT and the impact it can have on sole traders. We offer comprehensive accountancy services tailored to the needs of sole traders, including VAT registration and administration support. We will register you for VAT, ensuring all necessary information is provided accurately and efficiently. Once your VAT registration is approved, we will ensure you receive your VAT registration certificate and will begin to help you with the necessary compliance.

We also provide ongoing VAT administration support, helping you understand your VAT obligations and ensuring compliance with HMRC regulations by ensuring you pay the right amount of VAT and charge the appropriate rates. We can guide you through using MTD compliant software to upload and track expenses and incomings and submit your VAT returns for you quarterly.

If you are a sole trader who needs to register for VAT, or are considering voluntary registration then please get in touch with us to discuss how we can help you.

Sole traders may choose to voluntarily register for VAT even if their turnover is below the VAT registration threshold. Voluntary registration can be advantageous if you anticipate that your business expenses will exceed your VATable turnover, allowing you to reclaim VAT on those expenses.

Yes, as a VAT-registered sole trader, you can reclaim VAT on eligible business expenses. This includes purchases of goods and services that are directly related to your business activities. However, you must keep detailed digital records of your VAT expenses, such as receipts or invoices, and ensure that the expenses meet the requirements for VAT reclamation.

As a sole trader registered for VAT, you will need to file VAT returns on a quarterly basis through MTD compliant online services such as Xero or FreeAgent. Your accountant can help you with this by acting as an agent and compiling and filing your returns on your behalf.