Do Sole Traders Have to Register for VAT?

Sole traders are the easiest way to start a business; you are accountable for yourself and solely responsible for making decisions. One thing to consider is whether your business requires VAT, your decision will affect both your business and customers or clients.

What is VAT?

VAT stands for Value Added Tax, a sales tax charged on the value of goods or services. Not all traders are required t be VAT registered, this is dependent on your turnover.

When Do I have to Register for VAT?

The current VAT threshold is £85,000 in the UK. When your annual turnover for the previous 12 months reaches this threshold you are required to register for VAT.

You can register before this point, but it is optional.

What are Sole Traders VAT Responsibilities?

According to the UK Government, a VAT-registered business must:

• Include the correct rate of VAT in the price of goods and services
• Keep accurate records of how much VAT has been paid for business goods and services
• Keep accurate records of VAT on goods imported into the UK
• Report the amount of VAT charged to customers and paid to other businesses
• Pay any owed VAT to the HMRC

How Much VAT Do Sole Traders pay?

Currently, the standard VAT rate on goods and services is 20%. Some items fall under a reduced rate, charged at 5% and other products are VAT exempt.

As a sole trader, you are legally responsible for charging the correct rate of VAT and accurately reporting this to HMRC via VAT returns.

When Should I Charge VAT to Customers?

As soon as you are VAT registered you should be charging VAT to your customers for all applicable goods and services.

What are the Benefits of Being VAT Registered?

Whether you cross the turnover threshold or register voluntarily, there are benefits to being VAT registered.

Guarded against penalties for crossing the threshold – Some sole traders can creep over the threshold, if this goes unregistered you will receive a penalty notice from the HMRC.

Improved brand reputation – Being registered gives you a VAT number that can be displayed on your website or marketing materials, this shows potential customers that you are a legitimate business.

Potential refunds – Reclaiming VAT on goods or services purchased for your business is possible. You can go back as far as four years to claim VAT on refunds as long as the products are still being used by your business when you register.

How Do I Register for VAT?

You can register for VAT online or by post using a VAT1 form.

Paramount Formations are on hand to provide additional information and guidance for all your business needs. Contact us using our contact form or call our friendly expert team on 0800 0198 698.