Why and how sole traders can become VAT registered

Sole trader tailor


There are many things you should be aware of as a sole proprietor when it comes to registering for VAT, including the current threshold.

As a sole proprietor, you may get your firm off the ground quickly and cheaply.

As a result, you’ll be in a position to make business decisions more quickly and easily.

The subject of Value Added Tax (VAT) will be discussed (VAT).

Choosing whether or not to register for VAT as a sole proprietor is a decision you’ll have to make alone.

This is a significant decision that will have ramifications for both your customers and your business.

What does VAT registered mean?

Adding VAT to the price of goods and services in the UK is a consumption tax.

How much VAT does a sole trader pay?

At the time of this writing, most products and services are subject to a normal VAT rate of 20%.

Reduced rates apply to some items, such as children’s car seats and home electricity, which are charged at 5%.

Some items and services, such as food and children’s clothing, are exempt from VAT and hence do not have to be paid.

If you’re a VAT-registered sole trader, you’re legally obligated to figure out how much VAT to charge your clients.

VAT returns are required for the reporting and transfer of this VAT to HM Revenue and Customs (HMRC).

The benefits of registering for VAT

Even if your income is below the VAT level, there are numerous advantages to voluntarily registering for VAT as a sole trader:

Guard against financial penalties for creeping over the VAT registration threshold

As a sole proprietor, it isn’t unheard of for a business to exceed the threshold for VAT registration and not register.

An HMRC letter and a monetary fine for failing to register for mandatory VAT are the last things you need.

By voluntarily enrolling in VAT registration, you can avoid the stress of worrying about whether or not your business has reached the required yearly turnover.

Enhance your brand’s reputation as a serious outfit

If you’re a young company trying to make a name for yourself in a competitive market, having your VAT number on file can help you stand out from the crowd. For example, you’ll get a VAT registration number, which you can use to promote your business on your website and marketing materials.

Claim back VAT on goods or services bought for your business

Once your company is VAT-registered, you will be able to claim VAT back on all purchases you make for the company.

After submitting their VAT returns, several sole proprietors have received VAT refunds on zero-rated products they sold and on standard-rated things they purchased to support their business operations.

Reclaim VAT on goods bought up to four years from your date of registration

It’s even better that, if you’re still using the goods now, you may still be eligible to recuperate VAT paid on purchases made for your firm up to four years ago. As evidence of your company’s existence, you’ll need tax invoices and records from this time period.

A claim must be filed within six months of the date of serving.

Can I claim VAT back if I am not VAT registered?

You must be VAT-registered as a sole proprietor in order to reclaim the VAT you have paid.

In the absence of VAT, whatever goods or services you purchase for your business will be charged to your customers.

There must be evidence to back up a VAT refund claim, such as receipts and invoices. A sole trader registered for VAT has the same obligations as any other business.

How does VAT work for sole traders?

Do I need to charge VAT if I am self-employed?

As a self-employed professional, you only need to worry about charging VAT to your customers if you’ve overcome the VAT registration barrier.

A typical year’s worth of sales is shown here. More than this amount in revenue necessitates HMRC VAT registration for a sole trader.

What is the VAT threshold for a sole trader?

As a sole trader, you must register for VAT if your annual turnover from the previous 12 months totals more than £85,000, or if you know that your turnover will exceed this amount within 30 days.

An official VAT registration certificate will be sent to your business once you’ve completed the registration process, with information such as your company’s unique VAT number and the deadline for your first quarterly VAT report.

The new Making Tax Digital (MTD) for VAT system will also apply to most VAT-registered single traders who make more than £85,000 per year. This will necessitate the use of software that is compliant with HMRC systems to keep track of your VAT.

When it comes to MTD-compliant software, we’re here to help.

Sole traders under the £85,000 VAT level will also be affected by MTD in 2021, therefore now is a good time to familiarize yourself with digital bookkeeping tools that can easily track your revenue and expenses.

How to become VAT registered

If you and your company have concluded that VAT registration is the best course of action, you must register with HMRC.

Online VAT registration will be available to the vast majority of small business owners.

Your VAT online account, also known as a Government Gateway account, will be created once you register for VAT.

You’ll need this account to send HMRC VAT returns on a quarterly basis.

Postal registration for VAT is required for three sorts of enterprises.

“Distance selling” to the UK by EU-based companies (registering with a VAT1A form)
Businesses that bring in more than £85,000 in EU imports (registering with a VAT1B form)
Businesses that have claimed 8th or 13th Directive reimbursements on assets they are selling (registering with a VAT1C form)
Within 30 working days of receiving your formal VAT registration certificate, you should log into your VAT online account and view it.

If you need help registering your business for VAT and keeping up with your VAT duties, we can help. As your Agent for VAT purposes, we can give you with peace of mind, allowing you to concentrate on running your business rather than worrying about your tax obligations.

Sole traders can contact our helpful and knowledgeable team at 0800 0523 555 or send us an email using our online contact form to get their free initial VAT registration consultation started.