Do you need to register for VAT?

The two tests, and the deadlines that go with them

The backward test is the common one. At the end of every month, add up your taxable turnover for the previous twelve months. If it is over £90,000, you have 30 days from the end of that month to register, and you are VAT registered from the first day of the second month after you went over. Go over during July and you register by 30 August and charge VAT from 1 September.

The forward test is the one that surprises people, because it can bite in a month where your annual turnover is nowhere near the line. If at any point you expect your taxable turnover to go over £90,000 in the next 30 days alone, you register by the end of that 30 days and you are registered from the date you realised it, not the date the money arrives. Sign a £100,000 contract on 1 May and that is the date, whatever last year looked like.

Taxable turnover means everything you sell that is not exempt, including work that is zero rated. It is not profit and it is not the labour element, so a builder turning over £120,000 of which half goes straight to merchants is over the line even though the money was never theirs.

If going over was genuinely a one-off, there is an exception. You can apply on the same form, explaining why turnover will fall back, and HMRC writes to confirm whether you have it. That is a request rather than a right, so the sensible order is to apply and keep good records, not to assume and say nothing.

What registering does to your prices

This is the decision underneath the paperwork, and it splits cleanly by who your customers are. A VAT-registered business you invoice reclaims the VAT you add, so to them your price is unchanged. A homeowner cannot reclaim anything, so to them your price just went up by 20%.

A £6,000 bathroom becomes £7,200 to the same customer for the same work. If the market you are in will not take that, the alternative is to absorb it, which means a sixth of every invoice now belongs to HMRC and your effective price has dropped rather than the customer's having risen. Either way the money comes out of the same job.

The upside on the other side of the ledger is real, though. Once registered you reclaim the VAT on materials, tools, the van, fuel and anything else you buy for the business. For a materials-heavy trade that is a large number, and it is the reason registration hurts a labour-only decorator far more than a kitchen fitter buying £40,000 of units a year.

So the honest version of the question is not "do I have to register", it is "which side of my customer base is bigger". Mostly commercial and subcontract work: registration costs you almost nothing. Mostly domestic: it is a genuine price rise on your most price-sensitive customers, and worth planning for before the month it happens.

Not all construction work is 20%

The trade is unusual here and it is worth knowing before you quote. Building a new house is zero rated, so you charge no VAT and still reclaim what you paid on materials. Converting a non-residential building into a dwelling is zero rated too.

Some work is reduced rated at 5%. Changing the number of dwellings in a building, converting a property to a different residential use, and renovating a home that has stood empty for the past two years all fall there.

The conditions on all of these are tighter than a one-line summary, and getting a rate wrong is expensive because you owe HMRC the difference whether or not you charged it. HMRC Notice 708 is the reference, and a conversion or an empty-property job is the point at which a half hour with an accountant pays for itself several times over.

The practical effect on a domestic trade is that the price rise from registering is not uniform. A refurb of a long-empty cottage and an ordinary kitchen swap for the same customer can carry different rates, and the customer will notice.

The flat rate scheme, and the trap inside it

The Flat Rate Scheme is offered to businesses with VAT turnover of £150,000 or less excluding VAT. You still charge customers the normal rate, then pay HMRC a fixed percentage of your gross takings and stop reclaiming VAT on most purchases. The point of it is less bookkeeping, and sometimes a small margin.

The published rates for this trade are 9.5% for general building and construction services and 14.5% for labour-only building and construction services, with 1 percentage point off in your first year of VAT registration.

Then there is the limited cost business rule, which is where most one-person trades actually land. If your spending on goods is below 2% of turnover, or below £1,000 a year, you pay 16.5% instead. Services, fuel and anything you hire do not count as goods. A labour-only trade whose customer buys the materials is exactly the business that rule was written for.

So run the arithmetic on your own last twelve months before joining anything. 16.5% of gross takings with no input tax reclaimed is a worse deal than standard VAT for most trades, and the scheme is sold on simplicity rather than on being cheaper.

Registering before you have to

There are two decent reasons to register voluntarily. The first is a refund position: if you are buying a van, tooling up or working mainly on zero-rated new build, you reclaim VAT while charging little or none, and that is real money rather than a trick.

The second is who you want to work for. Commercial clients and main contractors expect a VAT number, and on larger subcontract work its absence quietly says how small you are. If you are trying to move from domestic work into subcontracting, registering early can be a positioning decision.

The reason not to is the obvious one: every domestic quote gets 20% harder to win, and you take on returns, records and deadlines you did not have. There is also a floor under going back. Deregistration is possible once turnover falls below £88,000, but it is not a switch you want to be flipping on and off.

What changes the day you register

You charge VAT from your effective date, which may be earlier than the day the certificate arrives. If you are still waiting for the number, the usual approach is to raise invoices for the VAT-inclusive amount without showing a VAT number, then reissue proper VAT invoices once it comes through. Do not show VAT on an invoice with no number on it.

You file returns and keep records digitally, because VAT has been inside Making Tax Digital for several years. So the software question arrives with registration rather than later.

And if you do construction work for other VAT and CIS registered businesses, the domestic reverse charge starts applying to those invoices immediately, which changes what they say and how much cash moves through your account. That is the guide next to this one in the series, and it is worth reading before your first post-registration invoice rather than after it.