Do sole trader tradespeople need to charge VAT?

VAT confuses a lot of sole traders, and getting it wrong is an expensive mistake to make. The short version: you only have to charge VAT once your turnover crosses a set threshold and you register with HMRC. Below that, you generally don't. Here is how it works and what it means for the prices on your quotes. This is general information, not financial advice, so check gov.uk or speak to an accountant for your own situation.

The VAT registration threshold

VAT registration is tied to your turnover, not your profit. You must register once your VAT-taxable turnover goes over the registration threshold, which is £90,000 over any rolling 12-month period (correct for 2024 to 2026). You also have to register if you expect to go over it in the next 30 days alone. Thresholds change, so always confirm the current figure on gov.uk before you make a decision.

Turnover here means your total sales, not what's left after costs. If you invoice £95,000 in a year, you are over the threshold even if your take-home is far lower. Keep an eye on a rolling 12-month total rather than your tax year, because that is how the test works.

If you're under the threshold

Most sole traders working alone sit comfortably below £90,000 and do not need to register. If that is you, you don't charge VAT, your prices are simply your prices, and your quotes show a single total with no VAT line. You also can't reclaim the VAT you pay on your own materials, which is just part of your costs.

If you're over the threshold

Once registered, you must add VAT (currently 20% for most trade work) on top of your prices and pass it on to HMRC. You can also reclaim VAT on your business purchases. The thing to watch is how you present prices to customers, especially homeowners who can't reclaim VAT themselves:

• Be clear whether the price you quote includes or excludes VAT. A homeowner seeing £2,000 and then a £400 VAT surprise at the end will not be happy.
• Show the subtotal, the VAT amount, and the total separately on the quote.
• Keep your VAT number on your quotes and invoices once you're registered.
• Set aside the VAT you collect. It isn't your money, it's HMRC's.

Should you register voluntarily?

You can register before you hit the threshold if it suits you. It can be worth it if you buy a lot of materials and want to reclaim the VAT, or if you mostly work for VAT-registered businesses who don't care about the extra 20% because they reclaim it too. It usually isn't worth it if your customers are homeowners, because adding 20% makes you look dearer than an unregistered rival for the same work. Weigh it up with an accountant.

Showing VAT clearly on your quotes

However you handle VAT, the customer should never be guessing. KeenQuote has a VAT toggle: switch it on and your quote automatically shows the subtotal, the VAT, and the total as separate lines, so there are no surprises and your document looks like it came from a proper business.

For more on laying out a clean, professional document, see what every professional quote should include. And if you're not sure whether to commit to a fixed price at all, our guide on quote vs estimate explains the difference.