VAT for UK Tradespeople

Do you need to register for VAT?

You must register if either:

• your taxable turnover for the last 12 months goes over £90,000 (it's a rolling 12 months, not the tax year), or
• you expect to go over £90,000 in the next 30 days alone, for example on one big job.

Below £90,000 you can still register voluntarily. Some trades do because their customers are VAT-registered businesses that can claim it back anyway.

Not registered? Don't add VAT to your invoices and don't show a VAT number. Charging VAT when you aren't registered isn't allowed.

Which VAT rate applies to your job?

Most trade work is 20%. The exceptions are mainly about homes.

The rate belongs to the job, not to each line. Labour and materials on the same job normally take the same rate. Itemise them anyway, because customers trust an invoice they can follow.

New-build zero-rating has catches for subcontractors (for example, on buildings a charity uses or communal residential buildings). If you're a subbie on a new build, check before you zero-rate.

What a VAT invoice must show

If you're VAT registered, a full VAT invoice needs:

• your business name and address
• your VAT number (GB plus 9 digits, e.g. GB123456789)
• a unique invoice number and the invoice date
• the time of supply (tax point) if it's different from the invoice date
• your customer's name and address
• a description of the work and materials
• the amount before VAT, the VAT rate and the VAT amount
• the total including VAT

More detail, with an example: UK VAT invoice requirements.

The domestic reverse charge (CIS work)

Since 1 March 2021, a lot of construction work between VAT-registered businesses has used the domestic reverse charge. You don't charge the VAT. Your customer pays it straight to HMRC instead.

It applies when all of these are true:

1. you're VAT registered and supplying building or construction services
2. your customer is VAT registered
3. the payment is reported under the Construction Industry Scheme (CIS)
4. the work is standard-rated (20%) or reduced-rated (5%)
5. your customer hasn't told you in writing that they're an end user or intermediary supplier

In practice: a subbie invoicing a main contractor usually uses the reverse charge. Invoicing a homeowner never does (they aren't in CIS). A business that's having work done for itself (an end user, such as a developer or a landlord) tells you in writing, and then you charge VAT as normal.

What the invoice must show:

• wording that makes it clear the reverse charge applies. HMRC accepts: "Reverse charge: Customer to pay the VAT to HMRC", "Reverse charge: VAT Act 1994 Section 55A applies" or "Reverse charge: S55A VATA 94 applies"
• the VAT amount due under the reverse charge (or, if you can't show the amount, the VAT rate)
• a total that doesn't include the VAT. Your customer pays you the amount before VAT.

The 5% disregard: if the reverse-charge part of a contract is 5% or less of its total value, you and your customer can agree at the start of the contract to charge VAT normally instead.

The Flat Rate Scheme: worth it for trades?

The Flat Rate Scheme keeps the paperwork simple. You still charge your customers 20% (or the job's rate). But instead of working out VAT in minus VAT out, you pay HMRC a fixed percentage of your VAT-inclusive turnover.

• Join: VAT turnover of £150,000 or less (excluding VAT)
• Leave: if turnover over the last 12 months is more than £230,000 (including VAT) on your joining anniversary
• Rates for trades: general building or construction services 9.5%; labour-only building or construction services 14.5%; repairing personal or household goods 10%; anything not listed 12%
• Limited cost business: if your goods cost less than 2% of turnover, or less than £1,000 a year, you pay 16.5%, which usually wipes out any benefit
• First year: 1% off your rate in your first year of VAT registration

Rule of thumb: it suits trades who supply their materials and want simple returns. It rarely suits labour-only trades (hit by the 16.5% limited cost rate), or subbies whose work mostly goes through the reverse charge. Run your own numbers or ask your accountant.

Making Tax Digital for VAT

Since April 2022, every VAT-registered business has had to keep its VAT records digitally and file VAT returns with MTD-compatible software. Paper records and typing totals into HMRC's website are out.

You don't need expensive accounting software. A spreadsheet with bridging software counts, and moving data by CSV import/export counts as a digital link. HMRC only rules out copying figures across by hand.

Quick answers

Do I charge VAT on materials as well as labour?

Yes, if you're registered. Materials on a job normally take the same rate as the job.

My customer is a homeowner. Does the reverse charge apply?

No. Homeowners aren't in CIS, so you charge VAT as normal (if you're registered).

I'm not VAT registered. What goes on my invoice?

Your prices with no VAT line and no VAT number. In TradieNotes, leave the VAT number blank and no VAT is added.

Can I zero-rate a solar or heat pump install?

In a home, yes, until 31 March 2027. Commercial installs are standard-rated.