VAT for tradespeople and subcontractors

The threshold: £90,000 on a rolling 12 months

You must register for VAT if your VAT-taxable turnover goes over £90,000 in any rolling 12-month period.

"Rolling" is the key word. It's not your tax year or your accounting year. At the end of every month, add up the turnover for that month and the 11 months before it. If the total is over £90,000, you've gone over.

What counts as VAT-taxable turnover

Everything you sell that isn't VAT exempt, before any costs:

• labour and materials you charge for;
• zero-rated sales (such as building a new home);
• work billed under the domestic reverse charge.

Exempt supplies and things outside the scope of VAT don't count. Most construction work is standard-rated at 20%. Some is reduced-rated at 5% (for example certain conversions and renovations of long-empty homes) or zero-rated (for example building new homes). None of that is exempt, so it all counts.

When you must register

The backward look

If your rolling 12-month total goes over £90,000 at the end of a month, you must register within 30 days of the end of that month. You'll be registered from the first day of the second month after you went over.

The forward look

You must also register if you expect your turnover in the next 30 days alone to be over £90,000 — say, one very large contract. You must register by the end of those 30 days, and you're registered from the date you realised.

GOV.UK's example: if you realise on 1 May that your turnover will go over £90,000 in the next 30 days, you must register by 30 May.

Worked example

Jess is a self-employed joiner who also supplies the timber and fittings. Her turnover has been rising:

She's £2,000 under. In October 2026, the October 2025 figure (say £6,200) drops out of the window. If she invoices £8,500 in October 2026, her new total is £88,000 − £6,200 + £8,500 = £90,300, which is over.

She'd have to register by 30 November 2026, and charge VAT from 1 December 2026.

The domestic reverse charge

Since 1 March 2021, most building and construction services supplied between VAT-registered businesses that are also in CIS use the domestic reverse charge. Under it:

• you, the subcontractor, don't charge VAT on your invoice. You show the VAT rate and note that the reverse charge applies;
• your customer (the contractor) accounts for the VAT on their own VAT return;
• you still record the sale, and it still counts towards your turnover for the threshold.

It doesn't apply when you work for an end user — for example, a homeowner, or a business that tells you it isn't going to sell the construction work on. Then you charge VAT as normal.

The reverse charge means VAT-registered subbies working mostly for contractors often pay more VAT on their purchases than they collect, and get money back from HMRC each quarter.

The Flat Rate Scheme

The Flat Rate Scheme lets small businesses pay a fixed percentage of their gross (VAT-inclusive) turnover to HMRC, instead of working out VAT on every sale and purchase.

• You can join if you expect taxable turnover of £150,000 or less (excluding VAT) in the next 12 months.
• You must leave if your turnover goes over £230,000.
• The percentage depends on your trade sector, but if you spend very little on goods, you're a limited cost business and pay 16.5%.

For many labour-only trades, the limited cost rate makes the scheme poor value. And reverse-charge sales don't fit the scheme well. Run the numbers or ask an accountant before joining.

Deregistering

If you're registered and expect your VAT-taxable turnover in the next 12 months to be below £88,000, you can ask HMRC to cancel your registration. You'll have to account for VAT on any stock and assets you still hold, if the VAT on them would be more than £1,000.

Pricing when you register

When you register, you add VAT to your prices for customers who aren't covered by the reverse charge.

• VAT-registered contractors can usually reclaim it, so it costs them nothing in the end.
• Homeowners can't reclaim VAT, so a £1,000 job becomes £1,200 to them. You'll need to decide whether to add VAT on top, absorb some of it, or a mix.

Either way, keep the VAT you collect separate. It's not your money. And because every VAT-registered business must now keep digital records and file VAT returns through software, see our guide to Making Tax Digital.

Voluntary registration

You can register even if you're under £90,000. It can make sense if:

• your customers are mostly VAT-registered;
• you buy plenty of materials or equipment with VAT on them; or
• you want to look established to larger contractors.

It makes less sense if most of your customers are homeowners.