VAT trips up a lot of tradespeople — either they register too late and face backdated penalties, or they stay unregistered and lose out on contracts with VAT-registered clients. This guide covers when you have to register, what rates apply to building work, how the flat rate scheme works, and the domestic reverse charge rules that affect subcontractors.
Key Takeaways
- The mandatory VAT registration threshold is £90,000 in taxable turnover in a rolling 12-month period (2026 figure)
- Most building work is charged at 20%, but certain residential work qualifies for the reduced 5% rate or zero rate
- The domestic reverse charge means subcontractors on CIS jobs often don’t charge VAT — the main contractor accounts for it instead
- The flat rate scheme lets some trades keep a percentage of the VAT they collect, rather than tracking every penny of input VAT
- Voluntary registration is worth considering if you work mainly for VAT-registered businesses
When You Must Register for VAT
You’re legally required to register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period. This isn’t your profit — it’s the total value of VAT-able sales, which for most tradespeople means your total invoiced income.
HMRC uses a rolling 12-month window, not a tax year. So if you earned £95,000 between May 2025 and April 2026, you’ve crossed the threshold even if individual tax years looked lower. Once you hit it, you have 30 days to register. Miss that deadline and HMRC charges a penalty plus backdated VAT on everything you should have collected.
You can also register voluntarily if you’re below the threshold. This makes sense if most of your customers are VAT-registered businesses — they can reclaim the VAT you charge, so it costs them nothing extra, and you can recover VAT you pay on materials and tools.
VAT Registration Threshold History
| Tax Year | VAT Threshold |
|---|---|
| 2023–24 | £85,000 |
| 2024–25 | £85,000 |
| 2025–26 | £90,000 |
The threshold was frozen for several years before rising to £90,000 in April 2024. HMRC publishes current rates at gov.uk/vat-registration-thresholds.
VAT Rates That Apply to Building Work
This is where tradespeople get confused — building work isn’t always 20%. The rate depends on what you’re doing and what type of property you’re working on.
Standard Rate: 20%
Most trade work falls here. Extensions, renovations, repairs, and maintenance on residential or commercial property are all standard rated. When in doubt, assume 20%.
Reduced Rate: 5%
The 5% rate applies to specific types of work on residential properties. According to HMRC guidance at gov.uk/vat-builders, the main qualifying categories are:
- Installing energy-saving products (insulation, solar panels, heat pumps)
- Converting a commercial building to residential use
- Converting an existing home to increase or reduce the number of dwellings (e.g. splitting a house into flats)
- Work on a property that’s been empty for at least 2 years
Zero Rate: 0%
Zero-rated building work is mainly for new residential construction — building a new home from scratch. It’s not the same as being exempt from VAT. Zero-rated work still counts towards your taxable turnover, you still need to be VAT-registered if above the threshold, and you still need to issue VAT invoices.
VAT Rate Quick Reference
| Type of Work | VAT Rate |
|---|---|
| New residential build | 0% |
| Energy-saving installations (residential) | 5% |
| Converting empty property (2+ years) | 5% |
| Residential renovation or repair | 20% |
| Commercial property work | 20% |
| Supplying materials only | 20% |
The Domestic Reverse Charge (DRC)
If you work as a subcontractor on CIS-registered jobs, the domestic reverse charge changes how VAT works on your invoices.
The domestic reverse charge was introduced in March 2021 to tackle VAT fraud in the construction sector. Under DRC, you — the subcontractor — don’t charge VAT on your invoice. Instead, the main contractor accounts for the VAT on your behalf and declares it to HMRC. You invoice for your net amount only, note on the invoice that “the domestic reverse charge applies”, and both you and the contractor record the appropriate VAT amounts in your returns.
DRC applies when:
- Both you and the contractor are VAT-registered
- The work falls within the CIS scheme
- The end customer is not the final consumer (i.e. you’re not working directly for a homeowner)
If you’re working directly for a private homeowner, DRC does not apply — you charge VAT at the standard rate as normal.
Our guide to the CIS scheme explained for tradespeople covers the wider CIS rules if you need more background.
The VAT Flat Rate Scheme
The flat rate scheme (FRS) is an option for small businesses with taxable turnover under £150,000. Instead of tracking every penny of input and output VAT, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover.
You still charge your customers the full 20% VAT. But you only pay HMRC a lower flat rate — the difference is yours to keep.
Flat Rate Percentages for Trades (2026)
| Trade | Flat Rate % |
|---|---|
| General building or construction services | 9.5% |
| Electrical work | 14.5% |
| Plumbing | 14.5% |
| Maintenance or repair of buildings | 9.5% |
| Services not elsewhere classified | 12% |
Source: HMRC VAT Flat Rate Scheme — gov.uk/vat-flat-rate-scheme/overview
Example: You invoice a client £1,200 including 20% VAT (£200 VAT, £1,000 net). As a plumber on a 14.5% flat rate, you pay HMRC 14.5% × £1,200 = £174. You keep the £26 difference.
Is the Flat Rate Scheme Worth It?
The FRS saves time, but it’s not always financially better. It works best when you don’t spend much on materials — if you buy a lot of materials, you might recover more VAT using the standard method.
HMRC also has a “limited cost trader” category. If your VAT-inclusive spend on goods is less than 2% of your VAT-inclusive turnover (or less than £1,000 per year), you’re classed as a limited cost trader and must use the 16.5% rate — which removes most of the benefit.
Claiming VAT Back on Purchases
Once you’re VAT-registered, you can reclaim VAT on business purchases — materials, tools, van costs, fuel, and business equipment. You need a valid VAT receipt or invoice to claim it.
You can also reclaim VAT on goods bought up to 4 years before your registration date, and services purchased up to 6 months before registration, as long as you still own the goods and can prove the purchase was for the business.
Making Tax Digital for VAT
If you’re VAT-registered, you must use Making Tax Digital (MTD) compatible software to keep your VAT records and file your returns. HMRC has required MTD for VAT since April 2022.
In practice this means using accounting software like Xero, QuickBooks, FreeAgent, or HMRC’s own free option for simple cases. Spreadsheets alone don’t count — they need to link to MTD-compatible software.
HMRC has a list of approved software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat.
Should You Register Voluntarily?
If you’re below the £90,000 threshold, you don’t have to register. But voluntary registration can be worth it in two situations:
You work mainly for VAT-registered businesses. They claim back whatever VAT you charge, so your prices don’t actually increase for them. Meanwhile, you can reclaim VAT on your own materials, tools, and expenses.
You’re growing fast and will hit the threshold within the year. Registering early gives you time to sort your accounting software and processes before it’s mandatory.
The downside: voluntary registration means quarterly VAT returns, stricter record-keeping, and charging VAT to any private customers — which can make you look 20% more expensive to homeowners who can’t claim it back.
Frequently Asked Questions
Do I have to charge VAT if I’m not VAT-registered? No. If you’re not VAT-registered, you don’t charge VAT on your invoices. Adding VAT when you’re unregistered is illegal and HMRC treats any VAT collected as money owed to them.
What happens if I go over the threshold and don’t register? HMRC can charge VAT on everything you should have collected from the date you first exceeded the threshold, plus a late registration penalty of up to 15% of the VAT due. The longer you leave it, the bigger the bill.
Does the VAT threshold apply to my total income or just trade income? It applies to your total taxable turnover across all VAT-able activities. If you have multiple income streams (e.g. trade work plus selling equipment), they all count towards the threshold.
Can I deregister if my turnover drops below the threshold? Yes. The deregistration threshold is £88,000. If your taxable turnover falls below this and you don’t expect it to exceed £90,000 in the next 12 months, you can apply to deregister via your HMRC VAT account.
Does the domestic reverse charge affect my turnover figure? Yes. Sales subject to the domestic reverse charge count towards your VAT taxable turnover for registration purposes, even though you don’t add VAT to those invoices.
Keeping Your Business Finances in Order
VAT is one part of the broader financial picture for self-employed tradespeople. If you’re also working out self-employment tax, our self-assessment guide for tradespeople covers income tax and National Insurance alongside it.
As your business grows, having a professional online presence helps you reach more clients — which means watching your turnover more closely. If you’re building a trade business and want a website that works for you, Digital Tradies builds professional sites for UK tradespeople from £49/month with no upfront cost, live in 3 days.
