VAT registration is one of the most common questions for tradespeople whose business is growing. The rules around when you must register, and how VAT applies to construction work specifically, are more nuanced than most people think. This guide covers what you actually need to know — without the accountant-speak.
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period (the threshold as of 2024/25 — check HMRC's website as this changes). Taxable turnover means your total sales of VAT-able services, not your profit. You must register within 30 days of crossing the threshold, and you start charging VAT from the date you were required to register — not from when you actually registered. Getting this wrong means you owe HMRC the VAT you should have been charging, whether or not you collected it.
You can register voluntarily below the threshold. This makes sense if most of your customers are VAT-registered businesses (they reclaim the VAT anyway, so it doesn't affect what they pay), or if you spend a lot on materials and tools (you can reclaim the VAT on those purchases). It doesn't make sense if most of your work is for domestic customers who can't reclaim VAT — adding 20% to your prices makes you less competitive without any real benefit.
Not all construction work is charged at the standard 20% rate:
The Flat Rate Scheme (FRS) is an HMRC option for businesses with taxable turnover under £150,000. Instead of tracking VAT on every purchase and sale separately, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. For building and construction services the flat rate is 9.5%. This means you charge customers 20% VAT, collect it, and pay HMRC 9.5% of the gross total — keeping the difference. Example: you invoice £10,000 + £2,000 VAT = £12,000 gross. You pay HMRC 9.5% × £12,000 = £1,140. You keep £860. The FRS simplifies your bookkeeping significantly and is often worth it for tradespeople who don't spend heavily on materials.
All VAT-registered businesses must use HMRC-compatible software to submit VAT returns under Making Tax Digital (MTD). You can't submit a VAT return manually via the HMRC website any more. QuickBooks, Xero, FreeAgent, and several other accounting packages all support MTD. VAT returns are submitted quarterly (or monthly if you opt in). Keep digital records of all invoices and receipts — paper records alone are no longer sufficient.
The most common VAT mistake for tradespeople: not noticing they've crossed the threshold until months later. Set a reminder to check your rolling 12-month turnover every quarter.
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