VAT is one of the few taxation areas that applies equally to every business from the multi-million pound company to the sole trader.

VAT was introduced by the Government in 1973 as an indirect tax ultimately aimed at the final consumer of goods and services. It was not designed to impact on businesses as, when an invoice is raised, VAT is charged over and above the cost of the goods or services.

Currently in the UK there are three basic rates of VAT:-

  • 20% is the most common and described as standard rate.

  • 5% for reduced rate goods and services such as domestic fuel and power.

  • 0% for essential items such as children’s clothing and insurance.


Once a business reaches the threshold of £64,000, or expects to breach this threshold in the next 30 days, the business is required to register for VAT and start charging VAT on their supplies. If the application for registration is not submitted within 30 days of reaching the threshold, HMRC may impose financial penalties on the company. Where the turnover of taxable supplies is less than £64,000 there is no requirement to register for VAT, although voluntary registration may be beneficial. The most beneficial aspects of voluntary registration are that if any VAT has been paid to suppliers, it can be offset against the amount of VAT due to HMRC for VAT charged to customers. Additionally once the company is VAT registered, it can take advantage of a number of simplification schemes run by HMRC which, under certain circumstances, may make additional profits for the company. Once the registration has been accepted, HMRC will issue the company with a VAT registration certificate.


We can advise you on whether you need to register for VAT or you should wait a little longer. VAT registration, calculation and returns are the services that we offer in this category.


When is VAT Payable?

VAT is payable on supplies of goods or services made within the UK by a taxable person in the furtherance of a business. If any of these three conditions are not met, then VAT is not chargeable.

There is no concrete definition of a taxable person but, in general, any individual or company carrying out business activities in the UK is classed as a taxable person.

How to Add VAT

Once satisfied that VAT is applicable to the services/goods being supplied, three possible rates apply depending on the type of supply.

  • 20% for standard rated supplies.

  • 5% for reduced rate supplies.

  • 0% for zero rated supplies.

In general, for freelancers the only time that the 0% rate will apply to their services is when work is being carried out on new build housing projects. The 5% rate is similar as this will generally only apply to certain renovations on dwelling houses. At all other times where VAT is applicable to the services, including improvement work carried out on existing houses, the rate to be used is the standard rate of 20%.

Once the correct rate for the supply has been determined, the VAT chargeable is calculated as the appropriate percentage multiplied by the net value of the services e.g. the number of days worked multiplied by the day rate.

How to Pay HMRC

Under normal circumstances a VAT return will be due to HMRC every three months. The end of the first period is given on your VAT registration certificate and the return and any payment due should be paid to HMRC within one calendar month of the period end date. The due date for payment will be given on the VAT return.

If payment is made electronically HMRC grant the business an additional seven calendar days to submit the return and payment. Prices