VAT, and when you actually have to register
The £90,000 threshold creeps up on busy trades faster than you'd think - and it's measured in a way that catches people out. Here's how VAT works when you're on the tools: when to register, what to charge, and what you can claim back.
THE SHORT VERSION
You must register for VAT once your turnover passes £90,000 in any rolling 12 months - not the tax year. Once registered, you add 20% to your invoices, claim back the VAT you pay on materials, fuel and tools, and send HMRC the difference every quarter through recognised software.
HOW VAT ACTUALLY WORKS
VAT is a tax on sales, collected by businesses on HMRC's behalf. When you're registered, you charge it on top of your invoices and hand it over - it was never your money. In return, you get to claim back the VAT you've paid out on business purchases.
Once you're in the system, three things happen:
- check_circleYou add VAT (usually 20%) to every invoice - that's output VAT
- check_circleYou reclaim the VAT on what you buy for the business - that's input VAT
- check_circleEvery quarter you pay HMRC the difference between the two
The paperwork side is digital by law. VAT-registered businesses have to keep digital records and file returns through HMRC-recognised software - that's Making Tax Digital for VAT, and it's been mandatory for everyone since 2022.
VAT ON A TYPICAL JOB
A £2,500 job with £300 of materials bought for it. You collect VAT, you reclaim VAT, and HMRC gets the difference.
£2,500 for the job plus £500 VAT at 20%. The VAT goes on the invoice as its own line.
That VAT isn't yours - you're holding it for HMRC. Don't let it sit in the same mental pot as your earnings.
The VAT you paid on the £300 of materials comes back to you. Same goes for fuel, tools and kit.
Collected minus reclaimed, paid to HMRC with your quarterly return. Filed digitally, due one month and seven days after the quarter ends.
DO I HAVE TO REGISTER?
It comes down to your turnover over the last 12 months - any 12 months, checked every month.
No obligation to register. You can register voluntarily if it works in your favour - more on that below.
Start watching your rolling 12-month total every month. One big job or a busy winter can tip you over without you noticing.
You must register within 30 days of the end of the month you went over. Registration also applies if you expect to pass £90k in the next 30 days alone.
The bit that catches people out
The £90,000 is a rolling 12 months, not the tax year. At the end of every month you look back over the previous 12 - so a strong autumn plus a strong spring can push you over even if no single tax year did.
And it's turnover, not profit - everything you bill, including materials you recharge to customers. Register late and HMRC treats you as registered from the date you should have been: you owe the VAT you never charged, plus a penalty on top.
WHAT RATE DO YOU CHARGE?
For most trade work it's the standard 20%. But construction is one of the few industries with real exceptions, and they're worth knowing because quoting the wrong rate comes out of your margin:
- check_circle20% standard - repairs, maintenance, extensions, and almost all work on existing homes and commercial buildings
- check_circle5% reduced - some renovations of homes empty for two years or more, and certain residential conversions
- check_circle0% zero-rated - labour and most materials on new-build homes. You charge nothing, but you still reclaim your input VAT
One trap inside the good news: zero-rated sales still count towards the £90,000 registration threshold. A year on new-builds can put you over the line even though you never charged a penny of VAT.
Working for other builders? The reverse charge applies
Since 2021, VAT-registered subcontractors doing CIS work for VAT-registered contractors don't charge VAT at all. The invoice states "reverse charge applies" and the contractor accounts for the VAT instead. You still reclaim VAT on your own purchases as normal - but because no VAT flows in, many subbies end up reclaiming more than they collect, which means HMRC pays you each quarter. Worth asking for monthly returns if that's you.
WHAT ABOUT THE FLAT RATE SCHEME?
The Flat Rate Scheme is meant to simplify things: you charge customers 20% as normal, but instead of tracking every reclaim you just pay HMRC a fixed percentage of your gross turnover - 9.5% for general building services, 14.5% for labour-only work.
The catch is the limited cost trader rule. If what you spend on genuine materials - not fuel, food, leased kit, or anything you don't use up on the job - works out at less than 2% of your turnover, or more than 2% but under £1,000 a year (£250 a quarter), your rate jumps to 16.5%. That second test catches plenty of labour-only subbies who assume they're spending enough on materials to be safe.
With software doing the record keeping anyway, the scheme's main selling point - less admin - has mostly gone. For most trades buying materials regularly, standard VAT accounting wins.
Under the threshold? Registering can still pay
If your customers are mostly VAT-registered businesses - contractors, developers, commercial clients - they reclaim whatever VAT you charge, so it costs them nothing. Meanwhile you get to reclaim VAT on your van, fuel, tools and materials. If you work mainly for homeowners it's the opposite: registering makes you 20% dearer than the next quote. Know which side you're on before you decide.
HOW BOSH HANDLES VAT FOR YOU
Quarterly returns shouldn't mean quarterly panic. The records build themselves while you work.
1. Connect your bank
Link your account with Open Banking and every payment in and out lands in Bosh automatically. Read-only - we can't move your money.
2. VAT tracked as you go
Screwfix, Toolstation, fuel, materials - the VAT on every sale and purchase is captured and categorised as it happens. You see what you owe building through the quarter, not as a surprise.
3. File in a couple of taps
When the quarter closes we tell you. Check the summary, hit submit - filed digitally, straight to HMRC, MTD-compliant. No spreadsheets, no bridging software.
From £3.99 a month. Cancel any time.
VAT QUESTIONS
The things people actually ask us about VAT.
What is the VAT registration threshold?
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£90,000 of taxable turnover in any rolling 12-month period. You check it at the end of every month by looking back over the previous 12. You must also register if you expect your turnover to pass £90,000 in the next 30 days alone.
Is the threshold based on profit?
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No - turnover. It's everything you bill, including materials you recharge to customers, before any costs come off. A busy trade with thin margins can hit £90,000 of turnover on a fairly ordinary income.
Do zero-rated jobs count towards the threshold?
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Yes. Zero-rated sales, like new-build work, are still taxable turnover - they count towards the £90,000 even though you charge no VAT on them. Only genuinely exempt income sits outside the calculation.
Do I charge VAT on materials I pass on to customers?
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Yes. Once you're registered, VAT goes on the whole invoice - labour and materials - even though you paid VAT buying the materials. You reclaim what you paid, and charge on what you bill. Don't just re-bill materials at cost without adding VAT.
What is the domestic reverse charge?
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A rule for CIS work between VAT-registered businesses. As a subcontractor you don't charge VAT to a VAT-registered contractor - your invoice states that the reverse charge applies and they account for the VAT instead. You still reclaim VAT on your own purchases as normal.
Should I register for VAT voluntarily?
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If your customers are mostly VAT-registered businesses, often yes - they reclaim what you charge, and you get to reclaim VAT on your van, fuel, tools and materials. If you work mainly for homeowners, usually no - registering makes your quotes 20% dearer than an unregistered competitor's.
What is the Flat Rate Scheme and should I use it?
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You pay HMRC a fixed percentage of gross turnover instead of tracking every reclaim - 9.5% for general building services, 14.5% for labour-only. But if you're a limited cost trader the rate jumps to 16.5%, which is worse than normal VAT for almost everyone. With software doing the records anyway, most trades are better off on standard accounting.
What counts as a limited cost trader?
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You're a limited cost trader if what you spend on goods - materials genuinely used up on the job, not fuel, food, leased kit or anything you keep - comes to less than 2% of your turnover, or more than 2% but under £1,000 a year (£250 a quarter). Plenty of labour-only subbies who think they're spending enough on materials still get caught by that second test.
When are VAT returns due?
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Quarterly, one month and seven days after each quarter ends, with payment due the same day. Your quarters depend on the stagger you're given when you register. Returns must be filed digitally through HMRC-recognised software - that's been the law for all VAT-registered businesses since April 2022.
What happens if I register late?
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HMRC registers you from the date you should have registered, so you owe VAT on everything you sold after that date - even though you never charged it to customers. There's a penalty on top, sized by how late you were. It's one of the most expensive tax mistakes a trade can make, which is why watching the rolling total matters.
Can I reclaim VAT on things I bought before registering?
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Some, yes. Goods you still have - tools, a van, stock - can be reclaimed if bought up to four years before registration. Services, up to six months before. You claim it on your first return, so dig out those receipts.
Does VAT replace Making Tax Digital for Income Tax?
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No, they're separate. VAT returns are quarterly on your VAT turnover and go through MTD for VAT. If your self-employment income is also over the Income Tax threshold, you'll be filing quarterly MTD updates for that too, on a different cycle. See our MTD guide for how that side works.
Don't let the threshold catch you out
Bosh watches your rolling turnover, tracks the VAT on every transaction, and files your returns digitally. Tax sorted. Job done.
Get started freeThis guide is general information about VAT for UK trades, not tax advice for your particular situation. Thresholds and rates are as published by HMRC. For the official detail see GOV.UK.