VAT Guide for UK Tradesmen 2026: £90,000 Registration Threshold, Domestic Reverse Charge Since March 2021

When Do You Need to Register for VAT?

The current VAT registration threshold is £90,000 taxable turnover in any rolling 12-month period. This is the figure for 2026 and has been frozen at this level since April 2024.

Once your taxable turnover exceeds £90,000, you must register with HMRC within 30 days of the end of the month in which you crossed the threshold. Missing this deadline can result in penalties.

You can also voluntarily register even if your turnover is below £90,000. This is often worth doing if most of your customers are VAT-registered businesses — they can reclaim the VAT you charge, and you can reclaim VAT on your own purchases (materials, tools, van costs, etc.).

If your customers are mainly homeowners who cannot reclaim VAT, voluntary registration may make you appear more expensive unless you absorb the VAT yourself.

Standard VAT Rates on Building Work

Not all construction work is charged at the same VAT rate. Getting this wrong can be costly.

Always check with HMRC or an accountant if you're unsure which rate applies — mis-charging VAT creates problems for both you and your customer.

The Flat Rate Scheme

The Flat Rate Scheme (FRS) is designed to simplify VAT accounting for smaller businesses. You can join if your VAT taxable turnover is £150,000 or less.

Instead of tracking every penny of VAT you charge and reclaim, you simply pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. You still charge your customers the full 20% VAT — the difference between what you collect and what you pay to HMRC is yours to keep.

Example: A builder invoices £10,000 + 20% VAT = £12,000 gross. On the flat rate scheme at 9.5%, they pay HMRC £1,140 (9.5% × £12,000) and keep the remaining £10,860. Without the scheme they would pay HMRC the full £2,000 VAT collected minus input VAT reclaimed.

Note: If you are a "limited cost trader" (your VAT-inclusive spend on goods is less than 2% of turnover or £1,000), you must use the 16.5% rate regardless of trade category.

Domestic Reverse Charge — The Most Important Change for CIS

The Domestic Reverse Charge (DRC) came into effect on 1 March 2021 and is the biggest VAT change to hit the construction industry in decades. If you work in the Construction Industry Scheme (CIS) and your customer is also VAT-registered, the reverse charge almost certainly applies to you.

How it works

Normally you charge VAT on your invoice and pay it to HMRC. Under the reverse charge, the customer accounts for the VAT to HMRC instead of you. You issue an invoice showing the net amount and the applicable VAT rate, but you do not collect the VAT money.

When does it apply?

• The supply is a construction service covered by CIS.
• Both the supplier (you) and the customer are VAT-registered.
• The customer is not the end user (i.e. they will use the service in another supply further down the chain).

When does it NOT apply?

• Your customer is an end user (e.g. a homeowner, or a business that occupies the building themselves).
• Your customer is not VAT-registered.
• The supply is zero-rated or exempt.

What to put on your invoice

Your invoice must include the words: "Reverse charge: customer to account for VAT to HMRC" and show the VAT amount (but mark it as £0 collected by you).

Because you are no longer collecting VAT from customers, your cash flow improves — but you also lose the ability to use collected VAT as short-term working capital. If you were on the Flat Rate Scheme, the DRC effectively forces you off it for affected supplies.

VAT on Materials

As a VAT-registered tradesman, you can reclaim input VAT on materials and supplies you purchase for your business — as long as you hold a valid VAT receipt or invoice.

• Keep all receipts from builders merchants, trade suppliers and online orders.
• You can only reclaim VAT on business purchases, not personal items (even from a trade account).
• If you purchase materials and supply them as part of a job for a domestic customer, bill the whole job (labour + materials) at whatever VAT rate applies to the work (20%, 5% or 0%).

Splitting a single supply into separate labour and materials invoices to try to apply different VAT rates is not permitted. HMRC looks at the overall nature of the supply.

What a Valid VAT Invoice Must Show

If you are VAT-registered, you must issue a valid VAT invoice within 30 days of the date of supply. Your customer needs this to reclaim VAT. A valid VAT invoice must include:

• Your business name and address
• Your VAT registration number
• A unique, sequential invoice number
• The date of issue
• The tax point (date of supply, if different from invoice date)
• Your customer's name and address
• A description of the goods or services supplied
• The net (ex-VAT) amount
• The VAT rate applied
• The VAT amount in pounds
• The gross (VAT-inclusive) total

For supplies under £250 (including VAT), you can issue a simplified VAT invoice that omits the customer details and gross total.

Making Tax Digital for VAT

Since April 2022, all VAT-registered businesses must comply with Making Tax Digital (MTD) for VAT — regardless of turnover. This means:

• You must keep digital VAT records (paper records alone are not compliant).
• You must submit your VAT returns using MTD-compatible software that connects directly to HMRC's API.
• Popular options include Xero, QuickBooks, FreeAgent, and Sage — most have a tradesman-friendly mobile app.

Failure to use MTD-compatible software can result in penalties. If you're still submitting returns manually through your HMRC online account, you need to switch.

For more detail, see our Making Tax Digital guide for tradesmen.

Frequently Asked Questions