VAT for Tradespeople: When to Register, What to Charge, How to Reclaim

VAT is the bit of running a trade business that catches more people out than anything else, and the reason is simple. The rules are fiddly, HMRC don't make them easy to understand, and the consequences of getting it wrong land entirely on you. There's no leniency for "I didn't know". You're expected to know.

I'm not an accountant and this isn't financial advice. Get a proper one if you're anywhere near the threshold. But this guide should give you enough to know what questions to ask, what numbers to watch, and where the cliff edges are that have killed otherwise healthy trade businesses.

Numbers in this article are correct as of May 2026. Government rules change, so always double-check on gov.uk before making decisions.

The £90,000 threshold (and why it's a cliff)

You have to register for VAT once your taxable turnover exceeds £90,000 in any rolling 12-month period. Not your tax year, not your accounting year, any 12 months. You also have to register if you expect to exceed it in the next 30 days.

The wording matters. It's turnover, not profit. So if you're invoicing £90k a year but spending £30k on materials, your "VAT turnover" is still the full £90k.

This number changes most years in the budget. It went from £85k to £90k in April 2024 and has stayed there since. There's been talk of moving it higher to £100k, but as of May 2026 it's still £90k. Check before you rely on this.

Here's why it's a cliff edge rather than a smooth ramp. The day before you cross £90k, your invoice for £500 to Mrs Jones for a boiler service is £500. The day after, it's £600 (£500 + 20% VAT). Mrs Jones isn't paying you any more for the work. She's paying £500 for the work and £100 to HMRC, who collect through you.

Two consequences. First, you've effectively become 20% more expensive overnight to domestic customers who can't reclaim VAT (Mrs Jones can't, neither can most of your residential customer base). Second, your competitors who are still under the threshold haven't had this problem and now look cheaper.

Lots of one-van operations deliberately stay just under £90k. They turn down work, take more holiday, do cash-in-hand for friends and family. This is legal. It's also a horrible way to run a business, because you're capping your earnings at a number set by HMRC rather than by your ambition.

When voluntary registration makes sense

You can register for VAT voluntarily before you hit £90k. There are situations where this is actually clever:

You sell mostly to other businesses. If your customers are commercial (other contractors, businesses, landlords with limited companies), they can reclaim the VAT you charge them. So your prices haven't really gone up from their perspective. Meanwhile, you can now reclaim VAT on your van, your tools, your fuel, your subscriptions. Free money in your favour.

You spend a lot on materials. Tradesmen who do high-material work (kitchen fitters, bathroom installers, electricians doing big rewires) often have £20k+ a year in trade material costs. The VAT on that (£4k+) is recoverable once you're VAT-registered. If you're under the threshold, you can't claim that back.

You're growing fast and going to cross anyway. Better to register early and get used to the admin than to scramble across the threshold mid-year and have HMRC backdate your registration to the first day you should have been registered.

You want to look like a "proper" business. Larger commercial customers sometimes won't deal with non-VAT-registered suppliers because it suggests you're small and possibly less reliable. Voluntary registration removes that filter.

The downside is admin and (usually) cashflow. You're now collecting tax for HMRC and paying it over quarterly, plus filing returns through Making Tax Digital software.

What rate do you charge?

Three rates exist for the work UK tradespeople do.

Standard rate, 20%. The default for most labour and materials. Boiler installs, electrical work, kitchen fits, decorating, roofing, the lot. If you can't think of a reason it should be a different rate, it's 20%.

Reduced rate, 5%. Applies to specific energy-saving work and to renovations of properties that have been empty for two years or more. Solar panel installs, insulation, certain heat pumps, draught-proofing. The rules are specific and HMRC are strict, so check the VAT Notice 708/6 before applying it. Wrong rate = HMRC reassessment.

Zero rate, 0%. Applies to construction of new dwellings, conversions of non-residential buildings into dwellings, and certain work on listed buildings used for residential purposes. New-build housing is zero-rated to keep prices down for first-time buyers. If you're a brickie working on a developer's new estate, your invoice to them should be at 0% VAT, not 20%.

The catch with zero rate is you still have to be VAT-registered to use it. You still file returns. You can still reclaim VAT on materials. You just don't charge any to the customer.

The Domestic Reverse Charge for construction

This is the big one that landed in March 2021 and is still tripping people up in 2026. It only applies to business-to-business construction services that come under the Construction Industry Scheme (CIS).

Normal VAT: you charge the customer 20%, they pay it to you, you pay it to HMRC.

Reverse charge: you don't charge the customer VAT at all. The customer accounts for the VAT themselves on their own VAT return. Your invoice has to specifically state "Reverse charge applies, customer to account for VAT to HMRC".

It applies when:

• You're a VAT-registered subcontractor
• Working for another VAT-registered business
• The work is within CIS (most construction services)
• The customer is not the end user (i.e. they're going to invoice it on, not consume it themselves)

The reason it exists is HMRC trying to crack down on missing-trader VAT fraud where dodgy subcontractors collect VAT and then disappear without paying it over.

Practically speaking, if you're a sole-trader plumber doing work for a builder who's invoicing a developer, you're probably under reverse charge. If you're doing direct domestic work for Mrs Jones, you're not. The decision is on you to determine which applies, and getting it wrong means HMRC clawback against either you or the customer.

This is precisely the kind of thing where decent job management software saves you, because it'll handle the reverse charge logic automatically once a job is tagged as DRC, and produce compliant invoices without you having to remember the wording.

What you can reclaim

Once you're VAT-registered, you can reclaim VAT on legitimate business expenses. The big ones for tradespeople:

Vans and commercial vehicles. Full VAT recoverable. Cars are different (usually no recovery unless 100% business use, which is hard to evidence).

Tools, plant and equipment. Yes.

Fuel for business mileage. Yes, but you'll need to add a fuel scale charge if there's any private use, which there usually is. There's a flat-rate scheme that simplifies this.

Trade materials. Yes, when bought from VAT-registered suppliers (which is most trade merchants).

Phone, broadband, software, accountant fees. Yes, in proportion to business use.

Vehicle insurance, MOT, repairs, parking, tolls. Yes for commercial vehicles.

Training and certifications. Yes if it's keeping you qualified for your trade (Gas Safe renewal, NICEIC, Part P updates).

Workwear. Only items that are clearly protective or branded with your business. Generic jeans and t-shirts don't qualify even if you only wear them to work.

Subsistence. Limited. Standard rule is you can't reclaim VAT on food and drink for yourself, but business travel meals away from your normal workplace are recoverable.

What you can't reclaim:

Client entertainment. Even if it's a Christmas card to a customer.

Cars used personally. Almost always blocked.

Personal expenses. Obvious but worth saying.

Quarterly returns and Making Tax Digital

You'll file VAT returns every three months (your "VAT periods" are set when you register, and they don't have to align with calendar quarters). Each return includes:

• Total VAT charged on sales (output VAT)
• Total VAT reclaimable on purchases (input VAT)
• Difference owed to HMRC, or refund due to you

Returns must be submitted through MTD-compatible software. Spreadsheets alone don't cut it any more, you need software that links via the HMRC API. Most UK accounting platforms (Xero, QuickBooks, FreeAgent, Sage) handle this. Pro-cess syncs with all of them so your VAT figures flow straight through.

Payment is due one calendar month and seven days after the end of the period. Miss it and you'll get a default surcharge that escalates with each missed payment, up to 15% of the VAT due. Don't miss it.

Quick mental check

If you're not sure whether you should be VAT-registered yet, our free VAT calculator does a quick check on whether you're approaching the threshold based on your last 12 months of turnover. It also includes a proper reverse-VAT calculator if you've ever had a customer ask "what's the price including VAT" and you've panicked and got out a calculator app.

Common mistakes that bite

Five mistakes I see again and again, in rough order of how badly they can damage your business:

1. Not registering when you should have. HMRC will backdate your registration and charge you VAT on every invoice you should have charged it on, plus penalties. This wipes out cash positions. If you're close to £90k, register early.

2. Charging 20% when the reverse charge should apply. Customer can refuse to pay the VAT element. You then have to issue a credit note and reissue the invoice properly.

3. Charging reverse charge when standard VAT should apply. Worse than the above because HMRC will come for the missing VAT from you.

4. Reclaiming VAT on personal use items. Will get picked up in any audit. Best case you pay it back. Worst case you get penalties and your reputation with HMRC takes a hit.

5. Claiming VAT without proper VAT receipts. Card receipts and bank statements aren't enough. You need a proper VAT invoice from the supplier showing the VAT number and the amount of VAT charged. Skips the rule on petrol, where pump receipts are accepted, but for everything else you need the full invoice.

The 30-second summary

• £90k threshold for compulsory VAT registration in May 2026
• Voluntary registration can make sense if you sell B2B or spend lots on materials
• Standard rate is 20%, reduced 5% for energy-saving and empty-property work, zero for new-build
• Domestic Reverse Charge applies to most B2B construction work (no VAT on the invoice, customer accounts for it)
• Reclaim VAT on vans, tools, materials, fuel, business expenses
• File returns quarterly through MTD software
• Get an accountant if you're anywhere near the threshold

VAT isn't actually difficult once you're set up properly. The hard bit is getting set up properly in the first place. Take it seriously, get advice once, and then it runs itself.