This page was last updated in June 2017. The rates and thresholds displayed on this page may have changed since then.
Did you know that some businesses don’t need to charge VAT?
The current VAT registration threshold in the UK is £85,000.
What Does This Mean?
Any business that has a turnover (total sales inc labour and supplied materials etc) of £85,000 or more in any 12 month period, must register for and charge VAT.
What About Businesses With a Turnover Below £85,000?
These businesses do not need to register for and charge VAT, although they can do so voluntarily if they wish.
This means you can make a saving of up to 20% when comparing prices with a business that is VAT registered.
What Types of Businesses Operate Below the VAT Threshold?
There are plenty of businesses that don’t need to charge VAT, these are usually one or two man traders that don’t sell too many goods/materials and most of their work is done on a labour-only basis.
This list isn’t exhaustive but gives you an idea of the types of trades that often operate below the threshold:
Plasterers – plaster isn’t expensive but this work is very labour intensive, so one or two man type businesses are usually below the VAT threshold.
Electricians and Plumbers – wiring, piping and associated sundries are fairly cheap so most of the money is spent on labour, this keeps the turnover below the threshold for smaller firms.
Landscape Gardeners – many landscape gardeners ask their customers to purchase the materials directly from a diy store or supplier, they then only charge for the labour.
Builders – while the total cost of a house extension is very high, many builders ask their clients to purchase the materials directly from the supplier and only pay the labour costs to the builder directly.
So I Can Save 20% by Choosing a Non-registered Business?
You won’t save 20% off the cost of any materials that are purchased via another company that is VAT registered, such as suppliers or DIY stores.
You’ll only save 20% on the labour element.
Show Me Some Real-world Examples of Where I Can Save Money
Drain unblocking – firms and individuals that jet drains to unblock them don’t supply any materials. It’s a labour only task, so if a non registered firm charged £100, a VAT registered one would cost you £120.
Minor roof repairs – concrete roof tiles only cost a few pounds each and if you choose a smaller firm that has their own ladders or access equipment you could save money. Expect to save up to £50 off the cost of replacing 5 broken tiles on a typical roof, should you instruct a non VAT registered businesses to do the work.
Replacing a fusebox – the average cost of replacing a fusebox is £500 inc VAT and this price includes the box itself and other materials which cost around £150. You could therefore save around £60 off the cost by choosing a non registered business.
Do I Get Any Benefits by Choosing a VAT Registered Tradesperson?
There are still a few people who believe that you’re more likely to get a better job done if you choose a firm that is VAT registered.
This is not the case.
There is no evidence to suggest that a business with a turnover of £100,000 will do a better job than a firm with a turnover of £84,000.
VAT registration is nothing more than an additional tax that is collected by the business and passed to the taxman.
It’s not a guarantee of workmanship quality or trustworthiness.
If you are a registered VAT businesses or individual, you can claim back some or all of the VAT if the purchase was either solely or partly for your business.
The VAT Calculator
There is a very handy online calculator where you can add or deduct VAT from any figure.
This is handy if you want to see how much VAT has been applied to a quote you’ve already received.
Try the VAT calculator here (it’s worth bookmarking this page)
Key VAT Facts
- the VAT rate is currently 20%, during the last recession it was reduced from 17.5% to 15% in an attempt to boost consumer spending.
- the VAT threshold usually changes each year and is announced in the budget.
- it’s not illegal for a tradesperson to ask his/her customers to buy the materials directly from the supplier and then only charge for labour. This can keep the turnover below the threshold.
- the registration threshold (currently £85,000) is not calculated every tax year or every calendar year, but every 12 month period. At the end of each month, the tradesperson should calculate their turnover for the previous 12 months. This is called a “12 month rolling period”.
- if a business fails to register on time, they will need to pay the VAT from the date they should have registered even if they haven’t charged the VAT to their customers. They may also have to pay a fine in addition to the VAT.
The HMRC website has more details about VAT registration here.
Why do Tradespeople Try to Avoid VAT Registration?
There are several reasons why a tradesperson or small business might try to stay below the registration threshold:
- their prices are more competitive and they can undercut other businesses
- less paperwork as VAT returns must be submitted every 3 months
- HMRC conducts frequent compliance checks
- fines and penalties for late returns or payments
Reasons Why a Tradesperson Should Consider Registration
VAT registration can be done voluntarily, even if the business or tradesperson is operating well below the VAT registration threshold.
Here are the main benefits:
- the trader can claim back VAT on all business related purchases going forward, including materials, fuel and equipment
- can claim back the VAT from materials purchased at anytime in the last 4 years, provided the items are still in stock and were not sold prior to registration.
- can claim back a proportion of the VAT from capital expenses going back 4 years, such as computers, printers, vans, access equipment and tools etc provided the business still owns them.
- can claim back all or part of the VAT from services such as advertising dating back 6 months prior to VAT registration.
VAT Number Check/Verification
If you have received a quote or estimate that includes a VAT charge, you can confirm that they are VAT registered by using this checking tool, it’s free: