top of page
  • Writer's picturePTA

Why and How Sole Traders Can Become VAT Registered?

Becoming a sole proprietorship is one of the easiest ways to start a new business. You are in full control of your operations and can make decisions about how to run your business quickly and easily.

One of these decisions concerns the value-added tax (VAT). You must decide whether or not your autonomous business deserves VAT registration. It's a decision that will affect both your customers and your business, so it's a great decision.

Sole Traders Can Become VAT Registered

What Does It Mean to Be Registered for VAT?

Value Added Tax is a consumption tax levied on the value of goods and services in the UK.

How Much VAT Does a Sole Proprietorship Pay?

At the time of writing, the standard VAT rate for most goods and services is 20%.

Some items, such as child safety seats and household power, are included in the discounted fare category, which is charged at 5%. There are some goods and services, such as groceries and children's clothing, that do not have a tax rate and do not incur a cent of VAT.

As a registered individual merchant for sales tax, you are legally responsible for the calculation and settlement of sales tax to your customers. This VAT must be declared and transferred to HM Revenue and Customs (HMRC) via VAT returns.

The Benefits of VAT Registration

Voluntary VAT registration as a sole proprietor, even if you earn below the VAT limit, gives you several advantages as an entrepreneur:

Protect yourself from penalties for exceeding the sales tax registration threshold

It is not uncommon for some sole proprietorships to cross the sales tax registration threshold and fail to register for sales tax. The last thing you want is a notice from HMRC and a penalty for failing to comply with mandatory VAT registration. Voluntary sales tax registration allows you to avoid the fear of crossing the sales threshold and focus on what you do best.

● Boost your brand's reputation as a serious outfit.

If you are a growing company that is working hard to compete with other established companies in your market, VAT registration can help solidify your brand as a larger company. They are provided with a VAT registration number to display on their website, in marketing brochures and in stationery to enhance their image.

● Claim VAT on goods or services purchased for your business

From the moment your company is responsible for VAT, you can claim a VAT refund on all goods and services purchased for your company. Sole proprietorships that sell zero tax rate products and purchase standard tax rate products to support their business have been known to receive VAT refunds after filing their VAT return.

● Claim VAT on purchased goods up to four years after the registration date

Better yet, it is possible to claim four years of VAT refunded on goods for your business, as long as you are using it today. Your business should have been operating during this period with VAT invoices and records kept as evidence. For services, you only have up to six months to use them.

VAT Registration

Business Volume Subject to VAT

When considering VAT as a sole proprietorship or limited partnership, keep in mind that the £ 85,000 threshold relates to sales taxable, not total sales.

A company's total sales include sales of standard rates, discounted rates, zero rates, and tax-exempt goods and services, while the sales taxable volume of business ignores tax-exempt sales.

This means that it is entirely possible for a business to have total sales above the threshold but not need to register for VAT purposes as the VAT taxable sales remain below the threshold.

The current threshold of £ 85,000 (20/21) is typically increased on April 1st each year.

You can find out more about VAT in our detailed article VAT rates, registration, and reporting.

Voluntary VAT Registration as A Sole Proprietorship

A company can also voluntarily register for VAT even if its turnover is below the £ 85,000 threshold. In this case, a business can have there is of course no deadline.

But why would a business want the added responsibility that comes with VAT registration? You can read about the benefits in our article Top 4 Benefits of VAT Registration, but most of the time it is because many businesses benefit from VAT registration. Once a business is registered for VAT, it can claim input tax (VAT on purchases), which means these purchases cost the business less.

Can I Request a VAT Refund If I am Not Registered For VAT?

If you are wondering how a VAT refund works, you must be a VAT-registered retailer to do this. If you don't charge your customers VAT, you won't be able to claim VAT on goods or services purchased for commercial purposes. Even if you are a VAT registered sole proprietorship, you must ensure that you have valid VAT records and invoices to be eligible for a reasonable VAT refund.

Do I Have to Collect VAT as a Self-Employed Person?

If you are wondering whether as a freelancer you should be collecting sales tax from clients, there is no need to worry about it until you have passed the sales tax registration threshold. This is an annual reference billing. As soon as you exceed this amount, each dealer must register with the HMRC for VAT.

What Is The VAT Limit for an Individual Retailer?

If your annual sales are more than £ 85,000 in the last 12 months you will need to register for VAT as a sole proprietorship or if you know your sales will exceed £ 85,000 in the next 30 days. Once you have registered for sales tax, you will receive a sales tax registration certificate that contains your company's unique sales tax identification number and the due date of your first quarterly sales tax return.

Most vats registered sole proprietorships earning more than £ 85,000 a year are also required to adhere to the new Making Tax Digital (MTD) system for VAT. This requires that you keep digital records of your VAT using software that is compatible with HMRC systems.

VAT Registration


We can help you get MTD Compliant software and we can work with you to ensure that you manage your VAT data correctly during this transition phase. MTD will also affect individual retailers below the £ 85,000 sales tax threshold from 2021


This is how you will register for sales tax

Once you've decided that VAT registration is right for you and your business, you need to register with HMRC.

Most sole proprietorships will be able to register for VAT online. When you sign up for VAT, you will be provided with a new VAT account online, also known as a Government Gateway account. This account is your vehicle for submitting quarterly VAT returns to HMRC.

There are three types of businesses that must register for VAT by mail instead:

· EU-based companies "Distance Selling" in the UK (registered with a VAT1A form)

Companies importing goods worth more than £ 85,000 from an EU country (registered using a VAT1B form)

· Companies selling assets for which redemptions have been requested under the eighth or thirteenth directive (registration using a VAT1C form) Once approved, your formal VAT registration certificate must be submitted to your online VAT account within 30 business days.

· If you need professional assistance in registering your business for VAT and meeting your current VAT obligations, we can work with you to manage your VAT matters. By preparing and submitting VAT returns and working with HMRC as your VAT representative, we can give sole proprietorships like you the peace of mind that you can focus on what you do best - running your business.



bottom of page