It doesn't matter where you're based; you have to deal with British VAT rules if you have clients in the United Kingdom. The VAT policy in the UK was first implemented in 1973 as part of their entry into the European Union. However, following their exit from the EU, the UK also left the EU VAT regime on 1st January 2021 and has been free to adopt its own VAT rules and policies.
Currently, Her Majesty’s Revenue and Customs (HMRC) is in charge of the VAT system in the United Kingdom. It is also responsible for regularly publishing and updating content related to VAT management in the UK.
If you are a freelancer or looking to become a freelancer in the UK and want to learn more about British VAT and the rules surrounding it, you're in the right place. We've created this guide with everything you need to know about the VAT system in the UK. Let's get started!
There are three different VAT rates levied in the UK, and freelancers must charge the amount that applies to their products and services.
Some things, such as postage stamps, financial and property transactions, are exempt from VAT.
You are required to register for VAT if your yearly taxable turnover exceeds £85,000. This amount is the VAT threshold and is the total of everything sold that is not VAT exempt. If your turnover doesn't exceed this amount, you can still register for VAT voluntarily.
Regarding the threshold, you must register for VAT if:
If you realize that your turnover will exceed £85,000 in the following 30-day period, you must register by the end of that period. Failing to do so will result in you paying a fine to compensate for your lapse!
It's important to note that this threshold is subject to change; therefore, you should frequently check the HMRC website for updates and other factors influencing when to register for VAT.
When registering for VAT in the UK, you must be aware of the following:
You must register by post if you're unable to do so online. Register using form VAT1 if:
You must register using form VAT1B if you import ('acquire') goods into Northern Ireland worth more than £85,000 from an EU country and form VAT1C if you're disposing of assets on which 8th or 13th Directive refunds have been claimed.
You can then sign up for a VAT online account by choosing the 'VAT submit returns' option once you receive your VAT number from HMRC.
If you want to hire an accountant or agency to handle all your VAT returns and dealings with the HMRC, Xolo provides services like Xolo Go and Xolo Leap, which help with precisely this and any other VAT concerns you may have.
Registering for VAT is only the first step. From the day of your effective registration date, you must:
In compliance with VAT laws, all your records (or invoices) should include the following information:
Additionally, most registered enterprises exceeding the VAT threshold are required to adhere to the 'Making Tax Digital for VAT' rules by maintaining some records digitally. The extensive list of records you need to keep is included on the website.
If this sounds overwhelming to you, don't worry. We can help! Xolo automatically generates, sends, and stores all your invoices digitally, so you won't have to worry about missing any steps or misplacing any documents.
Xolo Go is a quick and efficient way for freelancers who may or may not have a registered LLC or sole proprietorship to invoice clients legally.
Xolo Leap is the easiest and most effective way to create your own company through Estonian e-Residency! Reduce time spent on mundane business administration and focus on what you do best!
Simply put, we do the hefty work for you so that you can enjoy the freedom of freelancing. So connect with us immediately, and we’ll help you get your one-person business up and running in the UK in no time!