VAT Registration for Sole Trader

PHS Team

31 Jul, 2025

If you run your own business as a sole trader, understanding VAT registration is essential. You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month period. Once registered, you need to charge VAT at the correct rate on the goods and services you provide.

Even if your turnover is below the threshold, you can choose to register voluntarily. This may help you reclaim VAT on business purchases and appear more established to other VAT-registered companies, but be aware it also adds administrative tasks.

Registering is a simple process done online via HMRC. After registration, you'll receive a VAT number and must keep digital records of your sales and purchases, submitting regular VAT returns to HMRC.

When Does a Sole Trader Need to Register for VAT?

As a sole trader, you need to register for VAT if your taxable turnover exceeds £90,000 in any 12-month period. This means if your total sales of VAT-taxable goods and services go over this limit, you must register with HMRC within 30 days.

You also need to register immediately if you expect your turnover to exceed £90,000 in the next 30 days. Registering on time avoids penalties and ensures you comply with tax rules.

The Current VAT Registration Threshold for Sole Traders

As of July 2025, the VAT registration threshold for sole traders remains at £90,000 in a rolling 12-month period. This means if your taxable turnover exceeds £90,000 at any time, you must register for VAT with HMRC within 30 days. Taxable turnover includes most goods and services you sell, excluding exempt supplies.

If you expect your turnover to pass this limit within the next month, you must register immediately. Registering correctly helps you avoid penalties and ensures you comply with UK tax laws. The threshold is set to stay the same until March 2026.

Difference Between Voluntary and Compulsory VAT Registration

When you run your own business as a sole trader, understanding the difference between compulsory and voluntary VAT registration can help you make the best decision for your finances and growth. Compulsory VAT registration is a legal requirement once your taxable turnover exceeds £90,000 in any 12-month period. Voluntary registration, on the other hand, allows you to register for VAT even if your turnover is below this limit, offering certain strategic benefits.

Here’s a clear comparison between the two to help you decide:

Choosing between compulsory and voluntary registration depends on your business size, growth plans, and ability to manage extra paperwork. Voluntary registration might suit you if you want to reclaim VAT early or appear more established, but remember you will take on all VAT responsibilities. It’s wise to consult an accountant to decide what fits your individual needs best.

How to Register for VAT as a Sole Trader

Registering for VAT as a sole trader can seem daunting, but following these steps will make the process clear and manageable. Here’s how you can do it, step by step:

1. Check Your Turnover
   Review your business’s 12-month turnover. If you expect to exceed £90,000, you must register for VAT. You can also choose to register voluntarily, even if you’re below the threshold.
2. Gather Essential Information
   Collect your National Insurance number, proof of identity (like a passport or driving licence), bank account details, records of your annual turnover, and your Unique Taxpayer Reference (UTR) if you have one. You’ll also want details related to your Self Assessment return.
3. Create a Government Gateway Account
   Visit the HMRC website to create a Government Gateway account if you don’t already have one. This will be your main online access point for VAT and other tax needs.
4. Register Online with HMRC
   Sign in to your Government Gateway account, then follow the VAT registration process. Complete the necessary forms, provide your business details, and submit your application. If you can’t register online, request a VAT1 form to register by post.
5. Wait for Confirmation
   Once registered, HMRC will send your VAT registration certificate and VAT number, usually within 30 working days. Make sure to keep these safe—they are crucial for your business’s compliance.
6. Set Up Making Tax Digital (MTD) Software
   You’ll need compatible accounting software to record and submit VAT returns digitally, as required under Making Tax Digital rules.

Taking these steps ensures your VAT registration goes smoothly and keeps your sole trader business fully compliant.

Benefits and Drawbacks of Registering for VAT as a Sole Trader

If you’re a sole trader, deciding whether to register for VAT can feel daunting. Here’s a straightforward look at the key benefits and drawbacks, so you can decide what’s right for your business.

Benefits of VAT Registration for Sole Traders

• Reclaim VAT on Expenses: You can claim back VAT paid on most business purchases, reducing your overall costs and improving cash flow.
• Enhanced Professional Image: Displaying a VAT number makes your business appear more established and trustworthy, which can attract bigger clients and open doors to new opportunities.
  Avoid Fines: By registering early, you eliminate the risk of penalties for late registration if your sales creep above the VAT threshold.
• More Business Opportunities: Many large companies and suppliers prefer to work with VAT-registered businesses, potentially expanding your client base.

Drawbacks of VAT Registration for Sole Traders

• Extra Paperwork: VAT registration means more admin—accurate record keeping, quarterly VAT returns, and keeping all receipts and invoices can be time-consuming and may require accounting help.
• Higher Prices for Some Clients: You’ll have to add VAT (usually 20%) to your prices, which can make your services less attractive to customers who can’t reclaim VAT themselves.
• Cash Flow Pressure: VAT must be paid to HMRC even if clients delay paying you, possibly challenging your cash flow and requiring careful planning.

Consider your business goals and customer base carefully before deciding if VAT registration is the right step for you.

Making Tax Digital (MTD) and Its Impact on VAT-Registered Sole Traders

MTD is a government initiative that changes how you keep VAT records and file returns. As a VAT-registered sole trader, here’s what it means for you:

• You must keep digital records of all business sales and expenses.
• VAT returns must be submitted online using compatible software.
• This helps reduce mistakes and saves time on paperwork.
• Staying compliant ensures you avoid penalties and manage your VAT reports easily.

If you are a sole trader or self-employed and want to register for VAT, we are here to help you every step of the way. Our expert team of accountants understands your unique needs and will guide you through the entire VAT registration process smoothly. Connect with us today for professional VAT services tailored just for you. Contact us at 0208 8611685 or email info@phs-uk.co.uk. Let us handle your VAT registration so you can focus on growing your business.