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VAT for Tradespeople: A Simple Guide
7 min read
VAT seems complicated, but it doesn't have to be. This guide covers what tradespeople need to know — from registration to invoicing to returns.
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VAT Basics
VAT (Value Added Tax) is a tax on sales. You charge it to customers and pay it to HMRC.
**But**: You reclaim VAT on business purchases. So you only pay the difference.
Example:
- You charge £1,000 + £200 VAT = £1,200 to customer
- You paid £500 + £100 VAT on materials
- You pay HMRC: £200 - £100 = £100
VAT is neutral for your profit — you're just collecting and passing it on.
When to Register
**Mandatory**: When turnover exceeds £90,000 in 12 months (as of 2024).
**Voluntary**: You can register at any level. Useful if:
- You have significant VAT-able expenses (materials, vehicles)
- Your clients are VAT-registered businesses (they reclaim it anyway)
- You want to appear more established
**Downside**: Admin burden. If your clients are mainly consumers, they pay 20% more (or you earn 20% less).
VAT Rates for Trades
**Standard rate (20%)**: Most work and materials.
**Reduced rate (5%)**: Some energy-saving installations, renovations of empty properties, converting residential properties.
**Zero rate (0%)**: New residential construction, some mobility aids.
**Complex rules**: VAT on construction is notoriously tricky. Consult an accountant for large or unusual projects.
**Reverse charge**: B2B construction services have special rules (domestic reverse charge). Again, consult an accountant.
VAT on Invoices
VAT invoices must include:
1. Your VAT registration number
2. Invoice number and date
3. Your business name and address
4. Customer name and address
5. Description of goods/services
6. Total excluding VAT
7. VAT rate(s) applied
8. VAT amount
9. Total including VAT
Estimy handles this automatically. Just enter your VAT number in settings.
Filing Returns
**Quarterly returns**: Most businesses file every 3 months.
**Making Tax Digital**: VAT returns must be filed digitally using compatible software.
**What's due**: VAT collected minus VAT reclaimed. Can be a refund if you paid more than you charged.
**Keep records**: All invoices (sales and purchases) for 6 years.
**Flat Rate Scheme**: Simplified option for smaller businesses. Pay fixed percentage of turnover, don't reclaim VAT on purchases. Worth considering — ask your accountant.
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