Should I Register for VAT as a Sole Trader?

VAT as a Sole Trader

It is stressful to get along with the tax implications and other business obligations when you are working as a sole trader. Since you do not have a finance team to help you in certain tasks of managing your finances, it becomes very tricky to manage everything just on your own. Especially, when it comes to VAT as a sole trader, it is an important yet tricky issue to handle. If you are wondering about how important it is to get register for VAT. There are clear instructions for sole traders to be obliged for this.

You should be VAT registered whether you are running a business in the UK or if you find yourself under no obligation of doing so. You will realise the benefits later. In this guide, we have covered the reasons why you should get register for VAT, the necessary aspects of charging VAT, how it works for your business, and what are the possible benefits.


Are you worried about being registered for VAT as a sole trader and how to reclaim from HMRC? Worry not! AccountingFirms is the best place where you can seek assistance from the best tax advisors.


When should I Register for VAT as a Sole Trader?

Generally, the need of being VAT registered as a business is important when your earnings tend to exceed a certain threshold. This limit is decided by the local authorities of the tax. There are no exceptions entertained for the sole traders in this case. The limit of threshold after which you will have to register your business for VAT is just the same for the sole traders as they are for any other business.

Let’s take the example of a business that is exceeding the limit of £85,000 in annual turnover, and you are in the UK, get registered for VAT immediately by getting in touch with HMRC. The limit of threshold can vary in either country, however, the basic set of rules is just the same for all businesses regardless of the country you are living in. There is an exception for the countries that do not have VAT consideration there.


What is the Need to Charge VAT in the Role of a Sole Trader?

By now you must be wondering what is the need to charge VAT to be exact. The set of basic rules remains the same no matter where you belong to a big or a small business. If your business is VAT registered, you will have to charge VAT on the services and products that you are offering to your consumers. However, there are a few exceptions in this case which make a few items zero-rated and you can not charge VAT on them.

Just like the VAT registered businesses are allowed to charge VAT, the same way they are entitled to reclaim the amount of VAT. This means the amount of money you spent on VAT registration can be recovered by making a claim which sounds like good news to the sole traders.

While you claim for the VAT amount you spent, you will also find yourself in an allowable position to claim the VAT you have paid for your business expenses. For example, if a business is unable to collect the same amount of VAT that it has spent,  the difference will be covered by HMRC.


How does VAT Work When You are Self-Employed?

You become liable to submit your VAT returns also after you are a VAT-registered business. Ensure to submit the accurate VAT returns and this will help you to deal with the local tax authorities well. When it comes to sole traders, many of them are handling the accounts and finances of the business on their own, which makes it tricky and challenging for them to manage the rules of VAT. This will call for the high chances of unintentional errors and inaccurate submission of tax returns.

There is a factor of risk involved in cases of sole traders that the unintentional mistakes in the VAT returns will make you suffer from penalties and fines. Moreover, the basic VAT regulations are easy to meet for the sole traders but the advanced obligations related to VAT are normally beyond the ability of a self-employed individual to handle accurately.


Benefits of Getting Registered for VAT as a Sole Trader

You must get registered for VAT once it exceeds a certain limit of the threshold. However, what is recommendable if the income is below the threshold? The simple answer to this frequently asked question is, yes!

It will still be beneficial for your business to be VAT registered. Your business is eligible to be registered for VAT registration even if you are running below the threshold, however, you are free to choose whether to opt for this or not. One of the benefits that will help you decide to choose is the ability to reclaim the VAT you paid on business expenses.


The Bottom Line

Now that you have gathered a fair amount of information about VAT as a sole trader, we can bring the discussion towards wrapping up. We can say that it is a complex method to handle your VAT obligations when you are running your business as a sole trader, however, knowing the VAT obligations will keep you away from the risk of penalties and fines issued by HMRC is easy. Primarily it depends on the threshold limit that will help you decide to go for VAT registered or not. However, being a VAT-registered business will always be beneficial for your growth as you will be able to reclaim the VAT charges spent on the business expenses. We hope these few minutes of reading will help you to understand your VAT obligations well.


Getting registered for VAT as a sole trader or reclaiming other expenses might be stressful. AccountingFirms offers you the services of the best tax consultants in the UK.


Disclaimer: All the information provided in this article on VAT as a sole trader, including all the texts and graphics, in general. It does not intend to disregard any of the professional advice.