VAT threshold and registration for tradespeople

For a tradesperson, crossing the VAT threshold can mean a 20% price rise for homeowner customers or a 20% cut in what you keep. This guide explains exactly when you must register, how to do it and how to price for it, using GOV.UK figures checked on 12 October 2026.

What is the VAT threshold, in short?

You must register if either test is met:

• The backward test: your taxable turnover for the last 12 months goes over £90,000.
• The forward test: you expect your taxable turnover to go over £90,000 in the next 30 days alone, for example because you have just won a big contract.

Turnover means what you invoice, including materials, not your profit. VAT is a UK-wide tax, so the same thresholds apply in Scotland, Wales and Northern Ireland.

Who has to register for VAT?

Any business, whether sole trader, partnership or limited company, whose taxable turnover goes over the threshold. For tradespeople, most work is standard rated at 20%, so almost all of your invoices count. Some work is zero rated or reduced rated (for example some new-build housing and certain energy-saving installations), and zero-rated sales still count towards the threshold.

Who benefits from registering voluntarily?

You can register below £90,000. It tends to suit you if:

• most of your customers are VAT-registered businesses (main contractors, letting agents, commercial clients), because they reclaim the VAT you add,
• you work mainly under the domestic reverse charge, where you add no VAT but can reclaim the VAT on your own costs, or
• you have big VAT-able costs, such as a new van or expensive tools.

It usually does not suit you if most of your customers are homeowners, because they cannot reclaim VAT and will feel the 20% extra.

How do you register for VAT, step by step?

1. Check your turnover at the end of every month. Add up your taxable sales for the last 12 months. Set a reminder when you reach about £80,000 so it does not sneak up on you. Most job management and accounting apps can run this report in seconds.
2. Work out your deadline. Under the backward test, register within 30 days of the end of the month you went over. Under the forward test, register by the end of that 30-day period.
3. Register online on GOV.UK. You sign in, or create sign-in details the first time. You can save and come back. Some cases need the paper VAT1 form.
4. Note your effective date of registration. Under the backward test, it is the first day of the second month after you went over. You owe VAT on sales from that date.
5. Raise your prices or reissue invoices. Until your 9-digit VAT number arrives (HMRC sends it to your online account or by post), you cannot show VAT on invoices. You can increase prices to cover it, then reissue invoices with VAT once you have the number.
6. Set up MTD for VAT software. All VAT-registered businesses must keep digital records and file VAT returns through compatible software.
7. Choose a VAT scheme if one helps, such as the Flat Rate Scheme if your costs are low and your turnover is £150,000 or less.
8. Update your quotes and invoices to show your VAT number, the VAT rate and the VAT amount, and use reverse charge wording for CIS contractor work.

What does registering cost, and what are the deadlines?

Registering for VAT is free. The costs are the VAT you collect and pay over, the admin of quarterly returns, and software. The deadlines are what catch people out:

If your turnover later drops, you can cancel your registration once your VAT-registered taxable turnover is below £88,000. This is optional, not automatic. Think it through first: if most of your customers are VAT-registered contractors, staying registered may still save you money because you keep reclaiming VAT on your van, tools and materials.

Once registered, you file VAT returns (usually quarterly) through MTD software. Use our VAT calculator to add or remove 20% VAT from any price.

Worked example: an electrician crossing the threshold

Dan is a sole trader electrician. Most of his work is for homeowners. His rolling 12-month turnover:

Dan went over at the end of November 2026. He must register by 30 December 2026, and his effective date of registration is 1 January 2027. From that date, every invoice carries 20% VAT.

How should Dan price his work?

Take a consumer unit change he currently quotes at £600.

Absorbing VAT costs Dan £100 a job, or about £15,000 a year on £90,000 of turnover. Most trades split the difference: they raise prices by part of the 20% and reclaim VAT on materials to make up some of the gap.

What he can reclaim

If Dan spends £24,000 a year (excluding VAT) on cable, fittings and consumer units, he pays £4,800 of VAT on them and can reclaim it. On £90,000 of net sales he collects £18,000 of VAT, so he pays HMRC £18,000 minus £4,800 = £13,200 for the year. Before registering, that £4,800 was simply a cost.

Should he use the Flat Rate Scheme?

Possibly. Our Flat Rate VAT Scheme guide works through the numbers for building trades, including when it saves money and when the 16.5% limited cost trader rate makes it a loss.

A second example: voluntary registration for contractor work

Lee is a self-employed bricklayer with £60,000 of turnover, all of it labour for VAT-registered builders under CIS. He is well under £90,000, so he does not have to register. Should he?

• Under the domestic reverse charge, Lee would add no VAT to his invoices. His builders account for it. So his customers see no price change at all.
• Lee spends £9,000 a year (excluding VAT) on a van lease, fuel, tools and insurance where VAT applies. That is about £1,800 of VAT a year (insurance has no VAT, so the real figure depends on his mix).
• Once registered, he can reclaim that VAT. Because he charges no VAT on reverse charge sales, his VAT returns will usually show a refund.

For Lee, registering voluntarily is likely worth up to about £1,800 a year, at the cost of quarterly VAT returns and MTD software. If he also did some homeowner jobs, those would need 20% VAT added, so he would weigh that up too.

What changes day to day once you are registered?

• Quotes: state clearly whether prices include or exclude VAT. Homeowners compare the total, so quote VAT-inclusive prices to domestic customers to avoid nasty surprises.
• Invoices: show your VAT number, the VAT rate, the net amount, the VAT and the total. For CIS contractor work under the reverse charge, show the reverse charge wording instead of adding VAT. Our free VAT invoice templates are set up for both.
• Purchases: keep VAT receipts from your merchants, because you need them to reclaim VAT. Ask for a VAT invoice at the trade counter every time.
• Cash: put the VAT part of every payment aside. It is not your money, and a VAT bill you cannot pay is one of the fastest ways for a small trade firm to get into trouble.
• Returns: file your VAT return through MTD software and pay on time.

What VAT mistakes do tradespeople make?

• Checking only at the tax year end. The test is rolling, every month.
• Counting profit, not turnover. Materials you invoice count.
• Ignoring the 30-day forward test when you win one big job worth more than £90,000.
• Deliberately turning work away to stay under £90,000 without doing the sums. Sometimes registering and repricing is better than capping your business.
• Charging VAT before your number arrives. Raise the price instead and reissue invoices later.
• Adding VAT to CIS contractor invoices that should use the reverse charge.
• Forgetting to deregister if turnover drops below £88,000 and registration no longer suits you. Deregistering is optional.
• Using spreadsheets without bridging software. MTD for VAT requires compatible software.

What software helps with VAT?

You need software that keeps digital records and files MTD VAT returns. That is standard in every major UK accounting package. Xero's plans start at £18 a month ex VAT (checked 12 October 2026). Some trade job apps also file VAT returns: Powered Now includes VAT return submission on its Professional plan (£32 per user a month ex VAT). Our guide to accounting software for tradesmen compares the options and which job apps link to them.