If you're a builder, plumber, electrician or any other trade running your own business, there's one number you need to keep an eye on: £90,000. Cross it without noticing, and you can end up owing HMRC VAT you never collected from your customers.
This is the trap that catches more tradesmen than almost anything else. It's not the rate that's complicated. It's the way the threshold is measured, and the fact that VAT in construction has its own special rules that don't apply to a shop or a café.
Here's the good news: once you understand how the test works, it's straightforward to stay on top of. We'll walk through exactly when you have to register, how the rolling 12-month test catches people out, what the domestic reverse charge does to the maths for subcontractors, and a clear worked example so you can see the numbers.
When does a tradesman have to register for VAT?
You must register for VAT once your VAT taxable turnover goes over the registration threshold. For the current period (from 1 April 2024), that threshold is £90,000.
The part that trips people up is how that £90,000 is measured. It is not your turnover for the tax year, and it is not a calendar year. It's a rolling 12-month total. At the end of every single month, you add up your taxable turnover for the previous 12 months. If that running total has gone over £90,000, you've crossed the line.
So the test resets every month, not on 6 April. A strong autumn and winter can push you over even if your spring was quiet.
Once you cross it, the clock starts:
- You have until 30 days after the end of the month in which you went over to tell HMRC.
- Your effective date of registration is the first day of the second month after you crossed the threshold.
In plain terms: go over in July, register by 30 August, and you're VAT-registered from 1 September. From that effective date, you have to charge VAT on your standard-rated work.
What counts towards the £90,000 threshold?
This is where trades get caught more than most. Your VAT taxable turnover is the total value of everything you sell that isn't VAT-exempt, and for a typical builder or plumber that means the whole invoice, not just your labour.
If you supply and fit a £6,000 kitchen, the full £6,000 counts towards your threshold, even though most of it was the cost of the units you bought in. Materials you buy and pass on to the customer are part of your taxable turnover.
It's easy to think "I only really earned £2,000 on that job" and forget that the headline figure is what HMRC measures. On bigger supply-and-fit work, your turnover hits £90,000 a lot faster than your profit suggests.
What you do not count:
- VAT itself (you're measuring turnover excluding VAT).
- Genuine disbursements paid on the customer's behalf in very specific circumstances.
- The sale of capital assets, like a van you're replacing.
The standard VAT rate on most building work is 20% for the current period. Some work, such as certain energy-saving installations or qualifying new-build, can be reduced-rated or zero-rated, but the bulk of repair, maintenance and improvement work for households is standard-rated.
What is the 30-day "expecting to go over" rule?
There's a second, separate test that surprises people. You also have to register if you expect your taxable turnover to go over £90,000 in the next 30 days on its own.
This isn't about your past 12 months. It's forward-looking. If you win one big contract that will, by itself, take you over £90,000 within the next 30 days, you have to register straight away, and your effective date is the day you realised it, not the day the money comes in.
For most trades this rarely bites, but it can catch a contractor who lands a single large commercial or new-build job. If that's you, flag it early.
The £90k trap: an illustrative example
Illustrative example. Tom is a self-employed bathroom fitter (a sole trader, not VAT-registered). He works on a rolling 12-month basis without realising the threshold is measured that way.
Here's his taxable turnover, including the materials he supplies and fits, over a busy 12 months to 31 October:
| Period | Taxable turnover | Rolling 12-month total |
|---|---|---|
| Nov to Apr (6 months) | £41,000 | £41,000 |
| May to Sep (5 months) | £44,000 | £85,000 |
| October (1 month) | £8,000 | £93,000 |
At the end of October, Tom's rolling 12-month turnover is £93,000, which is over the £90,000 threshold.
What that means for Tom:
- He must notify HMRC by 30 November (30 days after the end of October).
- His effective registration date is 1 December (the first day of the second month after he crossed).
- From 1 December, he must add VAT at 20% to his standard-rated invoices.
Now the painful bit if he misses it. Say Tom doesn't notice and keeps invoicing without VAT for three more months. He's still legally registered from 1 December, so HMRC treats his invoices as VAT-inclusive. On £30,000 of work invoiced in that period, the VAT he owes is:
£30,000 ÷ 6 = £5,000 of VAT he has to hand over, out of money he already thought was his.
(The 1/6 fraction is how you extract 20% VAT from a VAT-inclusive total: £30,000 × 20 ÷ 120 = £5,000.)
That £5,000 comes straight out of Tom's pocket, because he can't easily go back to householders months later and ask them for more. That's the trap in one number.
How does the reverse charge change things for builders?
If you do work for other VAT-registered construction businesses (for example, you're a subcontractor invoicing a main contractor), there's a rule that changes how VAT flows: the VAT domestic reverse charge for building and construction services.
Under the reverse charge, when you invoice another VAT-registered business for construction work covered by the Construction Industry Scheme (CIS), you don't charge them VAT. Instead, the customer accounts for the VAT to HMRC themselves. You note on your invoice that the reverse charge applies.
The key points for a tradesman:
- It applies to standard-rated and reduced-rated construction services between VAT-registered, CIS-registered businesses.
- It does not apply when you invoice an "end user", for example a private householder or a business that isn't going to sell the construction services on. Those jobs are normal VAT.
- The list of work it covers is the same as CIS "construction operations".
Here's the catch that surprises subcontractors. The reverse charge changes who pays over the VAT, but it does not change what counts towards your registration threshold. The value of your reverse-charge sales still counts towards your £90,000. So you can be obliged to register even though, on those jobs, you never actually charge or collect any VAT yourself. After registering, many subcontractors find they're regularly due VAT refunds, because they pay VAT on materials but charge none on their reverse-charge labour.
If a lot of your work is subcontracting to bigger firms, get advice before you assume registration will cost you money. It often does the opposite.
Should a tradesman register voluntarily?
You can register before you hit £90,000 if you want to. Whether that helps depends on who your customers are.
Voluntary registration can make sense if:
- Most of your customers are VAT-registered businesses (they reclaim the VAT you charge, so your price doesn't really go up for them).
- You're a subcontractor doing a lot of reverse-charge work and paying VAT on materials, so you'd be reclaiming more than you pay over.
- You buy a lot of materials and want to reclaim the input VAT.
It usually doesn't help if:
- Most of your customers are private householders who can't reclaim VAT. Adding 20% makes you 20% dearer to them overnight, or squeezes your margin if you absorb it.
There's also the Flat Rate Scheme, which some small trades use to simplify VAT. You can apply to join if your VAT taxable turnover is £150,000 or less (excluding VAT) in the next 12 months. It can reduce admin, but the rate that works best depends heavily on how much you spend on materials, so it's worth running the numbers properly before you commit.
This is exactly the kind of decision worth a quick chat with an accountant, because the right answer is different for a domestic kitchen fitter than for a commercial subcontractor. Our tax advisory team helps trades work through it, and good bookkeeping is what keeps you from sleepwalking over the threshold in the first place.
What happens if you register late?
If you register late, you're still treated as VAT-registered from the date you should have been registered. That means:
- You owe VAT on the sales you made from your effective date, even though you didn't add it to your invoices (as in Tom's example above).
- HMRC can charge a failure to notify penalty, based on how much VAT was at stake and whether the lateness was careless or deliberate.
- You can reclaim VAT on eligible costs from that date too, which softens the blow a little, but rarely cancels it out.
The practical defence is simple: track your rolling 12-month turnover every month so you see the threshold coming. If you'd rather not watch it like a hawk, that's what your accountant and bookkeeping software are for.
Frequently asked questions
Does the VAT threshold count materials or just my labour?
It counts your total taxable turnover, which for a supply-and-fit trade is the whole invoice including materials, not just the labour element. That's why builders hit the threshold faster than they expect.
Is the VAT registration threshold £90,000 for the whole year?
The £90,000 is measured on a rolling 12-month basis, not a tax year. At the end of every month you check your turnover for the previous 12 months, so the test resets monthly rather than on 6 April.
Do I charge VAT to other builders under the reverse charge?
No. For construction work covered by CIS supplied to another VAT-registered business, you don't charge VAT under the domestic reverse charge. The customer accounts for it instead. You still charge normal VAT to private householders and other end users.
Does reverse-charge work still count towards my £90,000 threshold?
Yes. Reverse-charge sales still count towards your registration threshold even though you don't charge VAT on them. So you can be required to register without ever collecting VAT on that work.
What if I go just over the threshold for one month?
There's no automatic way to ignore a one-off spike, but if you can show HMRC that your turnover will stay below the deregistration threshold of £88,000 over the next 12 months, you may be able to apply for an exception from registration. It's worth getting advice before relying on this.
Can I deregister if my trade slows down?
Yes. If your taxable turnover falls below the deregistration threshold of £88,000, you can ask HMRC to cancel your registration. It's optional in that case, not automatic.
Get the threshold off your plate
You shouldn't have to do mental arithmetic on a ladder. If you're a tradesman who's getting close to £90,000, or you're not sure whether registering would help or hurt, book a free 20-minute call with a Zmartly accountant. We'll check where you stand, run the reverse-charge maths, and tell you straight. See how we work with tradesmen and contractors.
