US reader note. This page uses US English but discusses UK tax, VAT, CIS, or payment rules. Treat it as UK-focused educational content, not US legal, tax, or accounting advice. US requirements vary by federal, state, and local rules, so check with a qualified professional before applying anything to a US business.

The current VAT threshold

The VAT registration threshold for the 2026/27 tax year is 90,000 pounds. If your taxable turnover goes above that figure in any rolling 12-month period, you are legally required to register for VAT with HMRC. This applies to every type of business, including sole traders, partnerships, and limited companies. It does not matter whether you are an electrician, a plumber, a builder, or any other kind of contractor -- the same threshold applies across the board.

The deregistration threshold is 88,000 pounds. If you are already VAT-registered and your taxable turnover drops below that level, you can apply to deregister.

How to track your taxable turnover

The VAT threshold is based on a rolling 12-month period, not the tax year. This means you need to check your turnover on an ongoing basis, not just once a year. At any point, look back at the previous 12 months and add up the total value of your taxable sales. If that figure exceeds 90,000 pounds, you must register.

There is also a forward-looking test. If you expect your taxable turnover to exceed 90,000 pounds in the next 30 days alone, you must register immediately. This can catch contractors who land a single large contract that pushes them over the limit.

Taxable turnover includes most of the work you do. For contractors, that typically means all labor charges and materials you supply as part of a job. It does not include income from activities that are exempt from VAT, such as certain financial or insurance services, but those rarely apply to trade businesses.

Keep it simple. Update a basic spreadsheet or accounting app at the end of each month with your total sales. A running 12-month total takes seconds to check and means you will never be caught off guard. You can also use our free VAT threshold checker to see where you stand.

Voluntary registration: pros and cons

You do not have to wait until you hit the threshold. Any business can register for VAT voluntarily, even if your turnover is well below 90,000 pounds. There are genuine reasons to consider it, but also real drawbacks.

Advantages of voluntary registration:

  • Reclaim VAT on purchases -- you can claim back the VAT on tools, materials, van costs, fuel, and other business expenses. If you spend heavily on materials, this can add up to a meaningful saving.
  • Appear more established -- some commercial clients and main contractors prefer to work with VAT-registered businesses. A VAT number can signal that your business is above a certain size.
  • Reclaim VAT on past purchases -- when you register, you can reclaim VAT on goods bought up to four years before registration (if still in use) and services bought up to six months before.

Disadvantages of voluntary registration:

  • Higher prices for residential customers -- you must charge VAT on your invoices, which adds 20 percent to the bill. Homeowners cannot reclaim VAT, so your prices effectively go up. This can make you less competitive against non-registered contractors.
  • More admin -- you need to submit VAT returns (usually quarterly), keep detailed VAT records, and use Making Tax Digital-compatible software.
  • Cash flow impact -- you collect VAT from customers and pay it to HMRC. If a customer is slow to pay, you may end up paying HMRC before you have received the money.

For most contractors working mainly with residential customers, voluntary registration is not worth it unless your material costs are very high. If you work primarily with commercial clients or other VAT-registered businesses, the calculation is different because those customers can reclaim the VAT you charge.

What changes when you register

Once you are VAT-registered, several things change about how you run your business day to day.

Invoicing. Your invoices must now include your VAT registration number, the VAT rate applied to each item, the VAT amount, and the gross total including VAT. These are legal requirements -- a VAT invoice without these details is not valid.

Pricing. You need to decide whether to absorb the VAT into your existing prices or add it on top. Most contractors add it on top, which means quoting customers a net price plus VAT. For residential customers, always make it clear whether a quote includes or excludes VAT to avoid disputes later.

VAT returns. You must submit VAT returns to HMRC, usually every quarter. Each return shows the VAT you charged on sales minus the VAT you paid on purchases. You pay the difference to HMRC, or claim a refund if you paid more VAT on purchases than you charged on sales.

Making Tax Digital. VAT-registered businesses must keep digital records and submit returns using MTD-compatible software. You cannot submit VAT returns manually or use paper records.

Record keeping. You need to keep records of all sales and purchases, including VAT invoices from your suppliers. HMRC can inspect these records, so they need to be accurate and up to date.

The flat rate scheme

The flat rate scheme is an alternative way of handling VAT that simplifies the process considerably. Instead of calculating the VAT on every individual purchase and sale, you pay HMRC a fixed percentage of your gross turnover. The percentage depends on your type of business.

For contractors, the typical flat rate percentages are:

  • General construction or building services -- 9.5 percent
  • Plumbing and heating -- 9.5 percent (labor-only) or higher with materials
  • Electrical services -- 9.5 to 12 percent depending on the nature of the work
  • Painting and decorating -- 9.5 percent
  • Real estate and property services -- 14.5 percent

The main advantage is simplicity. You still charge customers VAT at the standard 20 percent rate, but you only pay HMRC the flat rate percentage. If your flat rate is 9.5 percent, you keep the difference between the 20 percent you charge and the 9.5 percent you pay. That gap is your effective saving.

The main disadvantage is that you cannot reclaim VAT on individual purchases (except for capital assets over 2,000 pounds including VAT). If you buy a lot of materials for each job, you might be better off on the standard scheme where you can reclaim VAT on everything you buy.

The flat rate scheme is available to businesses with a taxable turnover of 150,000 pounds or less (excluding VAT). First-year businesses get an extra one percent discount on their flat rate percentage.

Which scheme suits you? If your trade is mostly labor with few material costs -- for example, consulting, inspection work, or maintenance contracts -- the flat rate scheme often works out better. If you regularly supply expensive materials, the standard scheme lets you reclaim VAT on those costs, which can be more valuable.

How WOPA handles VAT on invoices

If you are VAT-registered, WOPA makes it straightforward. When you set up your account, you tell WOPA your VAT number and your preferred VAT rate. From that point on, every invoice WOPA creates will automatically include the correct VAT details -- your registration number, the rate, the VAT amount, and the gross total.

You do not need to calculate anything yourself. Just tell WOPA the net amount for the job, and it handles the rest. The PDF that gets emailed to your customer is a fully compliant VAT invoice.

If you are not VAT-registered, WOPA simply leaves the VAT fields off the invoice. No clutter, no confusion. Your invoices show the total amount due without any reference to VAT.

Either way, the process is the same: send a WhatsApp message with the job details and the amount, confirm the draft, and WOPA emails the invoice. VAT or no VAT, you do not need to open a separate app or remember to toggle a setting.

Join the waitlist to get US beta access when WOPA launches.

Important. This article is general information, not tax advice. VAT rules can be complex and change over time. For specific questions about your VAT obligations, speak to an accountant or contact HMRC directly.