Invoicer → Guides

When to charge VAT in the UK

Most freelancers start out not charging VAT, and at some point have to work out whether that's still true. Here's how the threshold actually works, when registering early makes sense, and how to show VAT on an invoice once you're in.

The basic position

You charge VAT on your sales only if you are VAT registered. If you're not registered, you don't add VAT, you don't show a VAT line, and you can't reclaim the VAT you're charged on your own business purchases.

Registration becomes compulsory once you cross the threshold. Below it, it's your choice.

The registration threshold, and how it's actually measured

This is where people trip up. The threshold is not assessed per tax year. There are two tests, and you need to fail neither:

• The backward look. At the end of each month, add up your VAT-taxable turnover for the previous rolling twelve months. If that total has gone over the threshold, you must register.
• The forward look. If you expect your VAT-taxable turnover to exceed the threshold in the next thirty days alone — for example, you've just signed one very large contract — you must register straight away, without waiting for the twelve-month total to catch up.

At the time of writing the threshold sits at £90,000, but treat that as a figure to verify rather than a fact to rely on. There are deadlines for notifying HMRC once you cross, and penalties for registering late, so it's worth checking your rolling total monthly rather than annually once you're within sight of it.

Registering voluntarily, below the threshold

You can register before you have to. Whether that's a good idea depends almost entirely on who your clients are.

Registration also brings obligations: charging correctly, keeping digital records, and filing returns (usually quarterly) under Making Tax Digital. That's a real ongoing cost in either time or accountancy fees.

Which rate applies

Assuming you're registered, most freelance services in the UK are standard-rated at 20%. But not everything is:

• Standard rate (20%) — the default for most goods and services.
• Reduced rate (5%) — a specific list, including things like domestic energy and certain installations.
• Zero rate (0%) — taxable, but at 0%. Includes most food, children's clothing, books and printed matter. Still counts towards your turnover for threshold purposes.
• Exempt — outside VAT altogether. Includes most insurance, finance, and certain education and health services. Doesn't count towards the threshold, and doesn't let you reclaim related input VAT.
• Outside the scope — not a UK supply at all, often the case for some services to overseas businesses.

"Zero-rated" and "exempt" look identical on an invoice — both add nothing — but they behave completely differently for registration and reclaim. If your work might not be standard-rated, get that confirmed rather than assumed.

How to show VAT on an invoice

Once registered, your invoices become VAT invoices and need extra detail:

• Your VAT registration number.
• The tax point (date of supply), where it differs from the invoice date.
• Each line shown excluding VAT, with the VAT rate that applies to it.
• The total excluding VAT, the total VAT, and the gross total as separate figures.
• If different lines carry different rates, they must be broken out separately.

A worked example on a £1,200 project at the standard rate, with a £100 discount applied before tax:

Note the order: the discount comes off before VAT is calculated, so VAT is charged on what the customer actually pays, not on the pre-discount figure. The generator on this site follows the same order.

Schemes that make it simpler

Once registered there are optional schemes that can reduce the admin, subject to eligibility limits:

• Flat Rate Scheme — pay a fixed percentage of gross turnover instead of tracking input and output VAT line by line. Simpler, but limited-cost traders pay a higher rate, and it isn't automatically cheaper.
• Cash Accounting Scheme — account for VAT when you're actually paid rather than when you invoice. Helpful if clients are slow, since you're not funding VAT on money you haven't received.
• Annual Accounting Scheme — one return a year with instalments through the year. Smoother cash flow, less frequent filing.

Eligibility thresholds apply to all three and change over time. Worth a conversation with an accountant rather than a decision made from a blog post.

Clients outside the UK

Whether you charge UK VAT to an overseas client depends on the place of supply rules and on whether they're a business or a consumer. Many business-to-business services supplied to customers abroad fall outside the scope of UK VAT, with the customer accounting for it under the reverse charge — but that's a general pattern, not a rule you can apply blind. Digital services to consumers have their own regime entirely. If you invoice abroad regularly, this is the area most worth paying for advice on.