This informal CPD article ‘VAT for the Self-Employed in the UK: A Complete Beginner's Guide’ was provided by Kairos-K, an organisation providing accounting services within the UK.
What is VAT and do you need to worry about it?
VAT (Value Added Tax) is a 20% tax you add to most services you sell in the UK (1). Think of it like this: if you charge a client £1,000 for a website, you'd actually invoice them £1,200 (£1,000 + £200 VAT).
The good news: You don't need to register for VAT until you're earning decent money. Most new freelancers can ignore it completely at first.
VAT Exemptions and Reduced Rates: What You Need to Know
Not everything in the UK is subject to the standard 20% VAT rate. Some items are completely exempt, others are zero-rated, and a few have reduced rates.
Zero-rated items carry VAT but at 0%. This includes books, newspapers, most food and drink (except restaurant meals), children's clothes and shoes, medical equipment, prescriptions, and public transport. The advantage here is that you can still reclaim VAT on related business expenses even though you're not charging any.
Exempt items don't carry VAT at all, which means you also can't reclaim VAT on related expenses. These include insurance services, banking and finance, education and training, healthcare services, postal services, and betting and gaming.
Reduced rate items carry VAT at just 5% rather than the standard 20%. This applies to domestic fuel and power, children's car seats, contraceptives, and certain renovation work on residential properties.
Important note: For up-to-date information, always check the government website under ‘VAT rates on different goods and services’ (2).
When do you HAVE to register for VAT?
Here's the magic number: £90,000
Once your business income hits £90,000 in any 12-month period, you must register for VAT within 30 days.
Important: This isn't about the tax year (April to April) or calendar year. It's a "rolling" 12 months, meaning you count backwards from today.
Example: Let's say it's June 2025. You add up all your invoices from July 2024 to June 2025. If that total is £90,000 or more, you need to register by the end of June.
Can you register voluntarily?
Yes! Even if you earn less than £90,000, you can choose to register for VAT. This might be smart if:
- Most of your clients are businesses (they can claim back the VAT you charge them)
- You want to look more professional/established
- You have lots of business expenses with VAT on them
VAT on invoices
The three VAT schemes explained (in simple terms)
When you register, you pick one of three ways to handle VAT:
1. Standard Scheme (the default)
- How it works: Charge 20% VAT on your invoices, then subtract the VAT on your business expenses
- Best for: Anyone who uses accounting software and has regular business costs (equipment, software, travel, etc.)
- Example: You invoice £1,000 + £200 VAT. You bought a laptop for £600 + £120 VAT. You pay HMRC £200 - £120 = £80
2. Flat Rate Scheme
- Join if: Your turnover is under £150,000
- How it works: Pay HMRC a fixed percentage of your total sales (for example, 14.5% for IT/consultancy work). You can't claim back VAT on purchases
- Best for: People with low business expenses who want simple admin
- Example: You invoice £1,200 total. You pay HMRC 14.5% of £1,200 = £174. Done!
3. Cash Accounting
- Join if: Your turnover is under £1.35 million
- How it works: Only pay VAT when clients actually pay you (not when you invoice them)
- Best for: Freelancers with clients who pay slowly or irregular income
- Bonus: You can combine this with Flat Rate if you qualify for both
How to register (it's easier than you think)
The whole process takes about 15 minutes online:
- Log into Government Gateway (3) (the same login for your Self Assessment)
- Choose "Register for VAT"
- Fill in your details and the date you crossed £90,000 (or tick "voluntary registration")
- Pick your scheme (Standard, Flat Rate, or Cash Accounting)
- Submit and wait 5 working days for your VAT number
Once registered, you must add VAT to invoices from your "effective date" - even if you haven't filed your first return yet.
What to charge different types of clients
This is where many people get confused, so let's break it down:
UK clients (businesses and individuals)
- Add 20% VAT to your invoice
- Show VAT separately: "Service: £1,000, VAT: £200, Total: £1,200"
Business clients outside the UK
- Charge 0% VAT (called "zero-rating")
- Write on invoice: "Reverse charge applies"
- Keep proof they're a real business (their VAT number, business address, etc.)
Selling digital products to consumers abroad
- No UK VAT but the other country might have its own digital tax rules
- Easiest solution: Use platforms that handle this for you
Key rule: Always keep evidence of where your customers are based (contracts, IP addresses, payment records).
Filing VAT returns: the new digital rules
Since April 2022, everyone registered for VAT must:
- Keep digital records (Excel spreadsheet, accounting software)
- File returns through approved software (no more paper forms!)
The timing
- Returns due: Every 3 months (quarterly)
- Deadline: 1 month and 7 days after each quarter ends
- Payment: Must reach HMRC by the same deadline
Penalties (don't panic, but be aware)
- Late returns earn "points" - get 2 points and you pay £200
- Points disappear after 12 months of filing on time
- Late payments incur interest (currently around 7-8% per year)
When can you stop being VAT registered?
You can deregister when you expect your next 12 months' turnover to be under £88,000.
The process:
- Complete online form VAT 7
- HMRC usually confirms within 3 weeks
- File a final return up to your cancellation date
- Pay any VAT still owed
One catch: If you own business assets worth over £1,000 (that you claimed VAT back on), you might need to repay some of that VAT when you deregister.
Action plan
If you're earning under £90,000:
- Don't register yet unless you have a good reason
- Keep track of your rolling 12-month income
- Set a reminder to check your total every few months
If you're approaching £90,000:
- Register within 30 days of crossing the threshold
- Choose Standard scheme if you have regular business expenses
- Choose Flat Rate if you want simple admin and low costs
- Get accounting software that handles VAT returns
Once registered:
- Add VAT to all UK invoices from your effective date
- Keep digital records of everything
- File returns on time every quarter
- Pay by the deadline to avoid penalties
The bottom line
VAT isn't as scary as it seems. When you do need to register, it's mostly about adding 20% to your invoices and keeping good records.
The key is staying organized and not leaving everything to the last minute. Get the basics right, and VAT becomes just another part of running your business - not a nightmare that keeps you awake at night.
We hope this article was helpful. For more information from Kairos-K, please visit their CPD Member Directory page. Alternatively, you can go to the CPD Industry Hubs for more articles, courses and events relevant to your Continuing Professional Development requirements.
REFERENCES
- https://www.gov.uk/how-vat-works
- https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services
- https://www.gov.uk/log-in-register-hmrc-online-services
