VAT, which stands for value added tax, is a surcharge on any goods or services that people pay for. As a tradesman, VAT regulations will apply to you regardless of your employment status. Whether you’re self-employed, a sole trader, or a limited company, it definitely pays to have a good understanding of how it works, and why it’s relevant to your business. Read on to discover everything you will need to know as a tradesman when it comes to VAT.
Do I need to register for VAT?
Registering for VAT is only a legal requirement if your business makes a turnover of above £85,000 over any twelve-month period, or if you anticipate reaching this financial landmark within the coming 30 day period. Not only will the responsibility rest with you to contact the Government to register for VAT in the first place, but to make any claims on any VATable purchases you make yourself. Alternatively, you can also complete voluntary registration for VAT, which is recommended if you regularly pay a high level of tax, so you can claim this back as needed.
Does VAT mean I have to charge more for jobs?
Technically, yes. If you’ve registered for VAT, you will need to up your fee by 20% in order to cover the additional costs demanded by the taxman. However, the price point for any job would be listed as £price + VAT, rather than an all-in fee, as this will let your customers know that you are VAT-registered. The additional cost of VAT should be applied to everything you charge for any work you do for your customers. That said, you will be able to reclaim all of this VAT back — including your own expenses that don’t get passed on to customers, such as petrol.
Is it illegal to work for cash and not charge VAT?
Although many people do consider VAT to be somewhat steep, that’s still no excuse to go off the books to try and get a better deal. Cash-in-hand work by so-called “black market tradesmen” is still illegal, and while the VAT rules could be made easier to follow, you shouldn’t be offering your services in a way which circumvents the rules around paying tax.
According to a recent survey conducted by the HomeOwners Association (HOA), almost a third of homeowners have admitted that they have paid tradesmen cash in hand to save money on paying VAT. A further 23% of those asked claimed that the cost of VAT has put them off making home improvements altogether.
Is there an easy way to organise my business’s VAT?
A quarterly VAT return form will need to be submitted to HMRC through their online portal, and this will be easier to complete if you keep a comprehensive record of your accounts, and ensure that this is updated with every business transaction you complete. It will also help your records if you store all of your VAT invoices, which will show information about every transaction, including the name and address of the customer, when the work took place, and details of the exact work completed. All of these records should be kept for a minimum period of six years, as you will need to draw upon this information if an audit needs to be conducted.