VAT for Tradespeople: A Plain-English Guide

Do You Need to Register for VAT?

You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period (as of 2024/25). This is called the VAT threshold.

You can also register voluntarily if your turnover is below the threshold — which can be beneficial if your customers are VAT-registered businesses (they can reclaim the VAT you charge).

What Is VAT?

VAT (Value Added Tax) is a tax charged on most goods and services in the UK. The standard rate is 20%.

As a VAT-registered tradesperson, you:

• Charge VAT on your invoices (output VAT)
• Reclaim VAT on your business purchases (input VAT)
• Pay the difference to HMRC each quarter

How to Charge VAT on an Invoice

Your invoice must show:

• Your VAT registration number
• The net amount (before VAT)
• The VAT amount (20% of net)
• The gross total (net + VAT)

Example:

• Labour: £500.00
• Materials: £200.00
• Net total: £700.00
• VAT (20%): £140.00
• Gross total: £840.00

Never just add "VAT included" without showing the breakdown — this isn't a valid VAT invoice.

The VAT Flat Rate Scheme

The Flat Rate Scheme (FRS) is designed to simplify VAT for small businesses. Instead of calculating the exact VAT on every purchase, you pay a fixed percentage of your gross turnover to HMRC.

The rate depends on your trade:

• General building or construction services: 9.5%
• Electrical work: 14.5%
• Plumbing: 14.5%
• Carpentry or joinery: 10.5%

How it works:

You still charge your clients 20% VAT. But you pay HMRC a lower flat rate percentage of your gross (VAT-inclusive) turnover. The difference is yours to keep.

Example (electrician on 14.5% FRS):

• Invoice to client: £1,000 + £200 VAT = £1,200 gross
• You pay HMRC: 14.5% × £1,200 = £174
• You keep: £200 − £174 = £26 profit

The FRS is most beneficial if you have low VAT-able expenses. If you buy a lot of materials, you may be better off on standard VAT accounting.

VAT on Materials

If you supply and fit materials as part of a job, you charge VAT on the whole invoice (labour + materials). This is called a "supply and install" job.

If a client supplies their own materials and you just provide labour, you only charge VAT on the labour.

Domestic Reverse Charge (Construction)

If you work as a subcontractor in the construction industry, you may be affected by the Domestic Reverse Charge (DRC). Under DRC:

• You do not charge VAT on your invoice to the main contractor
• The main contractor accounts for the VAT instead
• You write "Reverse charge: customer to account for VAT" on your invoice

DRC applies to most construction services between VAT-registered businesses in the construction supply chain. It does not apply to work done directly for end customers (homeowners, businesses not in construction).

VAT Returns

VAT-registered businesses must submit a VAT return to HMRC every quarter (or monthly if you prefer). Your return shows:

• Total VAT charged to customers (output VAT)
• Total VAT reclaimed on purchases (input VAT)
• The difference — which you either pay to HMRC or reclaim

Since April 2019, VAT returns must be submitted digitally using MTD-compatible software.

Common VAT Mistakes to Avoid

• Not registering on time — HMRC can charge penalties if you exceed the threshold and don't register
• Charging VAT before you're registered — you can't charge VAT until you have a VAT number
• Forgetting to include your VAT number on invoices
• Not keeping records — you must keep VAT records for at least 6 years
• Mixing up net and gross — always be clear about whether a price includes VAT or not

Getting Help

VAT can be complex, especially with the Flat Rate Scheme and Domestic Reverse Charge. If you're unsure, speak to an accountant who works with tradespeople — the cost of advice is usually far less than the cost of getting it wrong.

QuoteInvoice automatically calculates and displays VAT on your invoices, so you always send a compliant document.

Try QuoteInvoice free for 14 days — VAT support included.