VAT for the Self-Employed

When Do I Need to Register for VAT?

You must register for VAT if your taxable turnover in any rolling 12-month period exceeds £90,000 (the 2025/26 threshold). You must also register if you expect your turnover to exceed this threshold in the next 30 days alone.

“Taxable turnover” is the total value of everything you sell that is not VAT-exempt. Once registered, you must charge VAT on your sales, submit VAT returns to HMRC, and pay the VAT you owe.

Voluntary Registration

Even if your turnover is below the threshold, you can choose to register voluntarily. This can be beneficial if:

• You buy a lot of VAT-inclusive materials or supplies and want to reclaim the VAT
• Your clients are VAT-registered businesses who can reclaim the VAT you charge them
• You want your business to appear more established and credible

However, if most of your customers are not VAT-registered (for example, members of the public), charging VAT effectively increases your prices by 20%, which could make you less competitive.

VAT Schemes

HMRC offers different VAT accounting schemes. The two most relevant for self-employed individuals are:

Standard VAT Accounting

Under the standard scheme, you charge VAT at the appropriate rate (usually 20%) on your sales, and reclaim VAT on your business purchases. You pay the difference to HMRC. If you reclaim more than you charge, HMRC refunds the difference.

Flat Rate Scheme

The Flat Rate Scheme is a simplified alternative. Instead of tracking VAT on every purchase, you pay a fixed percentage of your gross turnover (including VAT) to HMRC. The percentage varies by industry — for example, 14.5% for computer repair or 9.5% for labour-only building services.

The Flat Rate Scheme can save you time on bookkeeping and may work out cheaper if your business expenses are low. However, you cannot reclaim VAT on most purchases (except capital assets over£2,000).

VAT Returns

VAT returns are submitted quarterly to HMRC (note: this is separate from MTD quarterly updates for income tax). Each return covers a three-month VAT period and includes nine boxes:

• Box 1 — VAT due on sales
• Box 2 — VAT due on acquisitions from EU
• Box 3 — total VAT due (Box 1 + Box 2)
• Box 4 — VAT reclaimed on purchases
• Box 5 — net VAT to pay or reclaim (Box 3 - Box 4)
• Box 6 — total value of sales (excluding VAT)
• Box 7 — total value of purchases (excluding VAT)
• Box 8 — total value of supplies to EU
• Box 9 — total value of acquisitions from EU

VAT returns must be submitted and payment made within one month and seven days of the end of each VAT quarter. Late submission or payment can result in penalties.

How Vecti Handles VAT

Vecti helps you stay on top of VAT by:

• Tracking the VAT element on income and expense records you enter
• Calculating your VAT return figures based on your recorded transactions
• Supporting both Standard and Flat Rate schemes
• Alerting you when your turnover approaches the VAT registration threshold
• Keeping a clear audit trail for HMRC compliance