Do I Charge VAT as a Sole Trader?

As a sole trader, your obligation to charge VAT depends on the value of your taxable turnover, not the structure or type of business you operate. You must register for VAT if your taxable turnover exceeds the current VAT registration threshold. However, voluntary registration is also an option below this threshold and may offer advantages in certain trading circumstances.

Once registered, you are required to charge VAT on all taxable sales at the correct rate. Whether your registration is mandatory or voluntary, you must comply with VAT obligations, including submitting VAT returns and maintaining accurate records.

This guide outlines key questions frequently raised by sole traders and explains how working with a VAT specialist such as The VAT People could improve your VAT management processes and support greater operational efficiency.

How much can a sole trader earn before VAT registration threshold?

When the 12-month rolling total of the value of taxable supplies reaches the VAT threshold (£90,000), you must notify HMRC of your requirement to register by the end of the following month.

For example, if your VAT taxable turnover reaches £90,000 in the 12-month period ending August 31, 2026, you must register for VAT by September 30, 2026. Typically, you will be obligated to charge VAT on your sales from October 1, 2026.

UK VAT registration must also be sought where taxable turnover is expected to exceed the UK VAT registration threshold in the next 30 days alone. It should also be noted that there is a nil registration threshold for non-established businesses, and as such, where a business established outside the UK makes taxable supplies subject to UK VAT, registration should be sought.

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.

Voluntary VAT registration

If your taxable turnover is below the VAT registration threshold, you are not required to register for VAT, but you can choose to do so voluntarily. Voluntary registration can be particularly useful for sole traders, as it enables the recovery of input tax on goods and services purchased in the course of making taxable supplies.

This can reduce your overall costs, improve cash flow, and enhance the credibility of your business with suppliers and customers. However, voluntary registration also brings with it the responsibility to charge output VAT on your sales and submit regular VAT Returns. If your customers are non-business persons, or a business that is not VAT registered, output VAT charged would represent an additional and irrecoverable cost, so the commercial implications of voluntary VAT registration need to be weighed. 

FAQs about charging VAT as a sole trader

Do sole traders need to charge VAT?

Yes, if you are a sole trader and have registered for VAT, you are required to charge VAT on the goods and services you provide. The standard VAT rate is 20%, although certain types of goods and services may qualify for the reduced-rate, zero-rate or be exempt from VAT altogether. You must also issue VAT invoices to your customers, detailing the VAT charged.

How does VAT work when self-employed?

When you are self-employed and registered for VAT, you must charge the appropriate VAT rate on your sales invoices. You are also entitled to reclaim VAT incurred in the course of making onward taxable supplies. Every quarter, you are required to submit a VAT Return to HM Revenue and Customs (HMRC), summarising your VAT sales and purchases. You will either pay the difference if you have charged more VAT than you have paid or receive a refund if you have paid more VAT than you have charged.

What is the main advantage of registering for VAT as a sole trader?

The main advantage of registering for VAT as a sole trader is the ability to claim VAT back incurred in the course of making onward taxable supplies. This can help reduce your overall operating costs, particularly if you incur substantial expenses on goods or services subject to VAT.

In addition, becoming a VAT-registered trader offers several other benefits:

• Cash flow management: by joining schemes such as the Cash Accounting Scheme, you only pay VAT to HMRC once your customer has paid you. This can help maintain healthier cash flow, especially for businesses with longer payment terms.
• Flat Rate Scheme: this optional scheme simplifies the process of calculating VAT and, depending on your business type, may result in paying a lower effective rate of VAT to HMRC. Under the Flat Rate Scheme, you pay a fixed percentage of your VAT-inclusive turnover instead of working out the difference between the VAT charged on your sales and the VAT paid on your purchases.
• VAT refunds: if your business exports goods or makes other zero-rated supplies, registering for VAT will allow you to reclaim input VAT incurred on associated costs, without a requirement to charge VAT on your supplies at a positive rate.

If you’re unsure whether VAT registration is right for your business, The VAT People can provide tailored advice based on your turnover, sector, and trading patterns.

Can sole traders benefit from VAT technology?

Absolutely, sole traders can significantly benefit from VAT technology. All VAT-registered businesses are registered for Making Tax Digital (MTD), which requires the submission of VAT returns using MTD software solutions. This automates the VAT calculation, invoicing and filing processes, thereby reducing manual errors and saving time. HMRC provide a list of MTD compatible software which should be utilised to simplify the VAT return filing process, making compliance easier and more efficient.

Do I have a VAT number as a sole trader?

If you are registered for VAT as a sole trader, you will have been issued a unique VAT registration number by HMRC. This number confirms your status as a VAT-registered business and is required on all VAT invoices, VAT Returns, and other official documentation.

You can find your VAT number on your VAT registration certificate, which is issued when your registration is approved. It will also appear in your HMRC online account and in most correspondence you receive from HMRC relating to VAT.

If you are not yet registered, you will not have a VAT number. You will only be assigned one once you register and HMRC has processed your application.

Can you transfer VAT registration from a sole trader to a limited company?

Yes, you can transfer your VAT registration from a sole trader to a limited company and retain the same VAT number. This process is known as a ‘change of legal entity’ and allows you to maintain continuity in your VAT affairs.

You must inform HMRC of the change within 30 days of incorporating your limited company. HMRC will then update their records and reassign your VAT registration number to the new entity, provided the transfer meets the necessary conditions.

Failing to notify HMRC in time could result in complications with your VAT account or penalties.

Where do I manage my VAT returns?

All VAT Returns must now be submitted through MTD  compliant software. If your business is within the scope of MTD, you cannot use the old HMRC Online Services portal (also known as the Government Gateway portal) to file your returns.

The Government Gateway portal was previously used by VAT-registered businesses to manually enter and submit VAT Returns online. However, it is no longer available for most businesses unless they are exempt from MTD requirements.

Instead, you must keep digital VAT records and use MTD-compatible software to prepare and file your returns.