VAT Registration for Tradespeople: When You Must Register and What to Do

VAT registration is mandatory once your taxable turnover exceeds £90,000 in any rolling 12-month period. Miss the deadline and HMRC can charge VAT on everything you have invoiced since the date you should have registered — out of your own pocket.

Understanding the rules before you hit the threshold saves you from an expensive surprise.

What is the VAT registration threshold?

The VAT registration threshold is currently £90,000. This applies to your total taxable turnover over any rolling 12-month period — not the tax year. If you bill £91,000 between, say, October 2025 and September 2026, you must register even if your April-to-April figure is lower.

You must register within 30 days of exceeding the threshold. HMRC will backdate your registration to the point you exceeded it.

Should you register voluntarily before £90,000?

Some tradespeople register voluntarily below the threshold. The main reason: if your main clients are VAT-registered businesses, they can reclaim the VAT you charge. You also get to reclaim VAT on your business purchases — tools, a new van, materials — which can add up to a meaningful saving.

The downside is admin: you must file VAT returns (quarterly for most) and your prices effectively rise by 20% for any customers who cannot reclaim VAT (typically domestic homeowners). For trades that work mostly with domestic clients, early registration rarely makes sense.

How does VAT affect your quotes?

Once VAT-registered, you charge 20% VAT on most of your services. A job you previously quoted at £1,000 becomes £1,200 (£1,000 + £200 VAT). For domestic customers, that is a real price increase. For VAT-registered commercial clients, it is cost-neutral.

You must show VAT separately on all invoices if you are registered. Your invoice needs to include your VAT registration number.

For guidance on writing a proper VAT invoice, see our full VAT guide for UK tradespeople.

What is the Flat Rate Scheme?

The Flat Rate Scheme (FRS) simplifies VAT for smaller businesses. Instead of tracking VAT on every sale and purchase, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. You keep the difference between the VAT you charge clients (20%) and the flat rate percentage you pay HMRC.

To join the FRS your VAT-inclusive annual turnover must be £150,000 or less.

Flat rate percentages vary by trade:

Example: You invoice £10,000 + VAT = £12,000 gross. As an electrician on FRS, you pay HMRC 14.5% × £12,000 = £1,740. You charged the client £2,000 VAT. You keep £260.

The FRS works best when you buy few materials. If you are materials-heavy, the standard method (reclaiming VAT on every purchase) may save more.

What is the Cash Accounting Scheme?

Under standard VAT accounting, you owe HMRC VAT when you issue an invoice — even before the client pays. The Cash Accounting Scheme lets you account for VAT based on when you actually receive payment. For tradespeople with slow-paying clients, this is a significant cash flow benefit. You can use it if your annual VAT-exclusive turnover is £1.35 million or less.

What counts as taxable turnover?

All VAT-able sales in the UK count toward your threshold. Most building and construction work is standard-rated at 20%. However, some specific work is zero-rated or exempt:

• New residential builds: zero-rated
• Converting non-residential buildings to residential: zero-rated
• Work for disabled people in their own home: zero-rated (with conditions)

If you do a significant amount of new-build work, it may take longer to reach the VAT threshold than your total billing suggests.

Frequently asked questions

What happens if I exceed the threshold and do not register? HMRC will require you to account for VAT from the date you should have registered. This means paying VAT out of the income you already received — your customers did not pay it, so it comes out of your margin. Penalties apply on top.

Can I deregister if my turnover drops? Yes. You can apply to deregister if your taxable turnover is expected to fall below £88,000 in the next 12 months. HMRC does not allow deregistration purely to avoid admin — you must have a genuine expectation of lower turnover.

Do I charge VAT on materials I supply? Yes. If you supply materials as part of a job, VAT applies to the materials as well as the labour (unless the work itself is zero-rated).

Does VAT apply to my CIS invoices? VAT and CIS are separate. If you are both VAT-registered and operating under CIS, the contractor deducts CIS from the net (ex-VAT) labour element of your invoice. VAT is charged on top and not subject to CIS deductions.