VAT registration for UK sole traders: A quick guide

Hitting the VAT threshold is a fantastic indicator of a thriving business - but it also brings about the legal requirement to get registered. To help clear the air around VAT registration for UK sole traders, we've put together this handy guide.

Read on for answers to key questions on VAT registration and information on how to stay compliant. We also explain what makes Wise Business a firm favourite among sole traders for simplifying the invoicing process and making VAT payment easy.

What is VAT?

VAT, which stands for Value Added Tax, is a type of sales tax that is charged by VAT-registered traders when selling certain goods and services.

What are the VAT rates in the UK?

20% (Standard rate) - this is applied to most goods and services¹

5% (Reduced rate) - this applies to some goods and services, such as children’s car seats and home energy¹

0% (Zero rate) - this applies to most food and children's clothing

It’s important to note that zero-rated items are still VAT-taxable, but the rate is 0%. You must record them in your VAT accounts, but you don't charge your customers any VAT. You can reclaim VAT on any costs related to these items.

In comparison, some items are VAT exempt, such as postage stamps and financial services. This is different from being zero-rated. VAT-exempted items are outside the scope of VAT, do not count towards your taxable turnover, and you generally cannot reclaim VAT on costs related to these items.

When should you register for VAT?

If your total taxable turnover for the last 12 months exceeds the £90,000 VAT threshold, you must register within 30 days of the end of the month in which you went over the threshold.

If you believe your total taxable turnover will exceed the VAT threshold of £90,000 within the next 30 days, you must complete your VAT registration before the end of that 30-day period².

The key rule is about your turnover. Once your business earns over a certain amount in a 12-month period, you're required by law to register for VAT - and yes, this rule absolutely applies to sole traders.

VAT-registered businesses must include VAT in the price of the products or services they sell, making sure they charge the correct rate.

They must also account for VAT on goods imported into the UK, keep records of how much VAT they pay on purchases for the business, and submit regular VAT returns to HM Revenue and Customs (HMRC).

What is the current VAT threshold for sole traders?

Currently, the UK VAT threshold is £90,000.

How much of a sole trader’s turnover is subject to VAT?

To work out your total taxable turnover, you must add up the total value of sales of goods and services that are subject to VAT or categorised as ‘out of scope’. This includes:

• Standard, reduced and zero-rated goods
• Goods that are hired or loaned to customers
• Business goods used for personal reasons
• Goods that have been given as gifts, part-exchanged or bartered
• Services received from businesses overseas that you’ve had to ‘reverse charge’
• Goods and services that are subject to the ‘domestic reverse charge’
• Building work with a value of £100,000+ that your business carried out for itself.

More details on all of this are available on the GOV.UK VAT registration page².

Do sole traders have to register for VAT voluntarily?

If your annual turnover exceeds the VAT threshold of £90,000 (or will do in the next 30 days), it’s mandatory to register your business for VAT.

Companies and their owners who are based overseas but supply goods and services to the UK must also register².

But you can also register voluntarily if your turnover is under the threshold, in a process called ‘voluntary registration’.

The benefits of voluntary VAT registration and the main things to note are outlined below:

Benefit/note:	Explanation:
Pro ✅	Being VAT-registered can make your business appear larger and more established to potential clients.
Pro ✅	You can claim back the VAT you pay on business purchases and expenses, which can reduce your overall costs.
Pro ✅	If your customers are VAT-registered themselves, they can reclaim the VAT you charge them, making your price increase irrelevant to them.
Worth noting ⚠️	You'll need to keep detailed VAT records and submit regular VAT returns to HMRC, which means more paperwork and time spent on admin.
Worth noting ⚠️	You will be responsible for paying HMRC the VAT you've charged, which can lead to significant bills if not managed carefully.

Note: It’s important to seek professional advice if you’re considering voluntary VAT registration as a sole trader.

How to register for VAT as a sole trader in the UK

Step 1: Get the necessary documents ready:

• Valid photo ID, such as a passport or driving licence
• Your National Insurance (NI) number
• Your bank account details
• Your Unique Taxpayer Reference (UTR), if applicable
• Details of your current annual turnover, and an estimate of your taxable turnover for the coming 12 months
• Details of your recent Self Assessment returns
• Recent payslips or P60s (if relevant)

Step 2: Create a Government Gateway account if you don’t have one already. This will allow you to use the online registration service on the GOV.UK VAT registration webpage² and receive a VAT registration number.

Step 3: Start including VAT on your invoices, making sure to add your registration number.

Important things to note:

• If your total taxable turnover for the last 12 months exceeds the threshold of £90,000, you must register for VAT within 30 days.

• If you believe your total taxable turnover will exceed the VAT threshold of £90,000 within the next 30 days, you must register before the end of that 30-day period².

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What happens if a sole trader doesn’t register for VAT on time?

If you fail to register for VAT, or you’re late registering for VAT after your turnover has exceeded the VAT threshold, you could face a penalty from HMRC.

The amount of the penalty will depend on how late you were in telling HMRC that you should have registered, and the amount of VAT due. As the penalty is a percentage of the VAT owed, there is no fixed upper limit, and the minimum penalty is £50.

What are the penalty rates for late VAT registration?

Under 9 months late - 5% of the VAT due

Between 9 and 18 months late - 10% of the VAT due

More than 18 months late - 15% of the VAT due

I run two separate businesses as a sole trader. How does the VAT threshold work for me?

If you run more than one business as a sole trader, you must combine the taxable turnover from all of your businesses. The £90,000 threshold applies to your total combined turnover, not to each business individually.

If your combined turnover exceeds the threshold, you must register for VAT.

What is ‘Making Tax Digital’ (MTD) and how does it affect VAT registration for sole traders?

All VAT-registered businesses, including sole traders, must follow MTD rules. This means you are required to keep digital records and use MTD-compatible software to submit your VAT returns to HMRC.

What methods can I use to account for VAT as a sole trader?

You can use one of three accounting schemes:

• Cash Accounting Scheme- lets you account for VAT based on when money actually enters and leaves your account, which is great for cash flow.

• Annual Accounting Scheme - lets you make advance payments towards your VAT bill throughout the year based on your last return (or an estimate). You only need to complete one VAT return each year.

• Flat Rate Scheme - lets you pay a fixed percentage of your turnover to HMRC. You still charge your customers the standard VAT rate, but you don't reclaim VAT on most purchases. This simplifies record-keeping as you don't need to track VAT on individual expenses.

Simplify invoicing and VAT payments with a Wise Business account

If you trade internationally and issue invoices for customers overseas, Wise Business can help you get paid by customers in multiple currencies, with low fees and the mid-market exchange rate.

Your Wise Business account comes with local account details to get paid in 8+ major foreign currencies like Euros and US dollars just as easily as you do in pounds.

All you need to do is pass these account details to your customer, or add them to invoices, and your customer can make a local payment in their preferred currency. You can also use the Wise request payment feature to make it even easier and quicker for customers to pay you via payment links and QR codes.

And of course, you can use your Wise account or card to pay any VAT you owe here in the UK. It takes just a few clicks, and all payments are fast and secure.

Register for Wise Business today ✍️

FAQs

Can I claim VAT back if I'm a sole trader?

Yes - if you purchased goods or services for business use, you should be able to reclaim VAT paid for them.

However, you can only do this if your own sole trader business is registered for VAT. This is one of the reasons you might choose to register for VAT voluntarily, even if your annual taxable turnover is under the VAT threshold.

Do I need an accountant if I'm VAT registered as a sole trader?

It’s not mandatory to have an accountant if you’re VAT registered, as many types of cloud-based and self-service accounting software offer VAT services. However, it could be a good idea to seek professional help.

As your business grows, your tax affairs could become more complicated. Having a professional check over your accounts and ensure you’re meeting all of your obligations with relation to VAT, PAYE, and income tax could be extremely helpful.

Sources:

1. VAT rates - GOV.UK
2. Register for VAT - GOV.UK
3. Late VAT registration penalty (VAT Notice 700/41) - GOV.UK

Sources last checked on September 22nd, 2025