The complete guide to self-employed VAT
Benefits | Downsides |
|---|---|
You can recover 20% on business expenses (eg get £2,000 VAT back on a £10,000 equipment purchase) | You could appear less competitive to non-VAT-registered clients by adding 20% VAT |
You’ll look more professional to corporate clients with a VAT number | You’ll need to spend time setting up and managing quarterly returns, digital record-keeping, and MTD compliance |
You can simplify your admin with Flat Rate or Cash Accounting schemes | You’ll need to pay HMRC VAT each quarter, even if your clients haven’t paid you yet |
You’ll reclaim VAT on purchases before paying it to HMRC | You could face fines up to 100% of the VAT due if you file your VAT return late or make mistakes |
You’ll avoid a last-minute rush to register when you hit the VAT threshold |
Scheme | Suitable for | Main benefits | Potential downsides |
|---|---|---|---|
Standard | Most businesses | Reclaim all input VAT; straightforward | Quarterly admin |
Flat rate | Low-expense service businesses | Simpler accounting; pay fixed % of turnover | Can’t reclaim most input VAT |
Cash accounting | Slow-paying clients | Pay VAT only when customers pay you | Can’t use with Flat Rate |
Annual accounting | Stable, predictable businesses | One yearly return; pay in instalments | Need to estimate payments |
Margin | Second-hand goods dealers | Pay VAT only on profit margin | Complex record-keeping |
Retail (incl. Point of Sale Scheme, Apportionment Scheme, and Direct Calculation Scheme) | High-volume, low-value retail sales | Simplify VAT on till totals | Not for most B2B sales |