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Do I Have to Pay VAT if I’m Self Employed?

Nov 19, 2014

Being self-employed doesn’t automatically give rise to a VAT liability. There are various criteria to meet, upon which you should register for VAT.

VAT is a sales tax charged by traders or those who provide a service to customers. Typically the rate is 20% although there are other rates for some goods and sectors including those which are 0-rated.

Typically, the self-employed register for VAT when taxable supplies (sales) reach the VAT registration threshold. To clarify exactly what this means there are two different tests that can be applied.

You need to register for VAT right away if at the start of a 30-day period you believe turnover for the 30 days will exceed the VAT registration threshold (currently £81,000 for 2014/15). The other test is perhaps more intuitive. You need to keep a total of your monthly sales for a 12 month period. As and when that total exceeds the threshold you need to register for VAT.
Your business structure/model is also a factor when determining VAT liability. If you are importing supplies from other EU countries then you are caught by the VAT threshold. The situation is more complex if you are doing business in the UK and overseas – you should consult with your accountant.

You can’t assume your business pays the standard rate of VAT. For example, food and drink businesses are generally 0-rated but some products are standard rated including hot food, crisps and confectionary. Surprisingly, the printing of the likes of brochures is 0-rated. Your accountant should be able to guide you through the principles as they apply to your specific sector.

Putting the VAT threshold to one side for a moment, it is possible to register for VAT voluntarily. For example if you buy in standard rated items but sell 0-rated services or products then you would be liable for a VAT refund. Anyone who is thinking of registering voluntarily should discuss the benefits of doing so with their accountant. VAT administration is in itself complex, and it makes sense to register when there is a clear commercial benefit to doing do i.e. claiming for purchases used to start the business or trade.