Do I Need to Register for VAT?

You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month period (as of April 2024). You can voluntarily register below this threshold.

How VAT Works on Quotes and Invoices

Once registered, you charge 20% VAT on most services. Your quote shows: subtotal + VAT = total. ServicePay handles this automatically.

The Flat Rate Scheme

HMRC offers a Flat Rate Scheme where you pay a fixed percentage of your gross turnover. Worth talking to your accountant about.

Record Keeping

You need to keep records of all sales and purchases for at least 6 years. ServicePay's reports section generates a VAT summary by quarter.

Making Tax Digital

Since April 2022, VAT-registered businesses must use MTD-compatible software to keep records and file returns.

Common Mistakes

Forgetting to register when you hit the threshold
Not keeping receipts for materials and tools
Mixing personal and business expenses

The Domestic Reverse Charge

If you do construction work for another business in the construction chain, the domestic reverse charge probably applies, and it changes who pays the VAT to HMRC. Instead of you charging VAT and passing it on, the customer accounts for it themselves. You invoice without VAT and state on the invoice that the reverse charge applies and that the customer must account for it.

Three things all have to be true. The customer must be VAT registered. They must be CIS registered. And the work must be a construction service rather than, say, a straightforward supply of materials or professional services. If any one of those is false, you charge VAT the ordinary way.

The exception that catches people out is the end user. A domestic householder is not in the CIS chain, so the reverse charge never applies to them. Neither does it apply to a business that is having work done on its own premises for its own use rather than to supply on. A customer can tell you in writing that they are an end user, and if they do, you charge VAT normally.

Two practical consequences worth planning for. First, your cash flow changes: you are no longer holding the VAT you collected between invoicing and your return, which for a busy quarter can be a noticeable amount of working capital that simply is not there any more. Second, if you are on the Flat Rate Scheme and most of your work becomes reverse charge, the scheme often stops making sense — there is much less VAT-inclusive turnover for the flat rate to apply to. It is worth doing that sum rather than assuming.

This is one of the places where trade-specific software earns its keep. ServicePay applies the reverse charge where it applies, adds the required wording to the invoice, and keeps it separate from CIS, which is a different deduction on a different basis — CIS comes off the labour element of each payment, VAT does not work that way at all. Getting the two confused is common and expensive.