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Do I Charge VAT as a Sole Trader?

Do I Charge VAT as a Sole Trader?

VAT

Whether you need to register your business for VAT is determined by the value of your business’s taxable turnover, rather than the type of business in operation.

You can register for VAT through mandatory or voluntary registration. When your business’s revenue exceeds the VAT registration threshold, you must check whether this constitutes taxable income and therefore whether you are required to register for VAT. It is important to keep in mind that once you are a VAT-registered trader, you must charge VAT on sales at the appropriate rate.

There are two conditions for mandatory VAT registration, which you can test by:

1. Keeping a 12-month rolling total of the value of taxable supplies made When the running total reaches the VAT registration threshold (£85,000), you must notify HMRC of your requirement to register by the end of the next month.

For example, if your VAT taxable turnover reaches £85,000 in the 12-month period ending August 31, 2022, you must register for VAT by September 30, 2022. Typically, you will be obligated to charge VAT on your sales from October 1, 2022.

It is important to note that you must register for VAT if your VAT taxable turnover in any consecutive 12-month period exceeds the registration limit - not simply the amount of VAT taxable turnover in your 12-month accounting period.

2. If you suspect that your VAT taxable turnover in the next 30-day period alone will exceed the VAT registration threshold, you must register at the earliest opportunity.

Once registered for VAT, you must charge VAT at the correct rate on your sales invoices and file VAT returns. You can find more information on the various VAT rates here.

Voluntary VAT registration

Even if you are not required to register for VAT because you do not meet the registration threshold, you may still choose to do so - this is known as voluntary registration. For sole traders, this is often beneficial as it allows for the recovery of input tax incurred in the course of making taxable supplies (i.e. those on which output VAT is charged).

If you are considering registering for VAT, contact the experts at The VAT People to receive bespoke and in-depth consultation. We have long helped sole traders find ways to maximise their VAT payments and use their VAT obligations to their advantage. Contact us today to see how you can benefit from VAT advice, by calling 0161 477 6600 or filling out our contact form here.

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