VAT (Value Added Tax)
UK consumption tax of 20% (standard rate) charged on most goods and services. Mandatory registration above £90,000 turnover; optional below that.
VAT is collected at each stage of the supply chain. As a freelancer, you charge VAT on your invoices to UK clients (the "output tax") and reclaim VAT paid on business expenses (the "input tax"); the net difference is paid to HMRC quarterly.
Compulsory registration is required when your taxable turnover exceeds £90,000 in a rolling 12-month window (2024 threshold). Below that, registration is voluntary — many freelancers register anyway to reclaim VAT on equipment and present a more "established" image to B2B clients.
The Flat Rate Scheme simplifies VAT for small businesses: you charge 20% but pay HMRC a fixed lower rate (e.g. 14.5% for "consultancy") and skip detailed input tax tracking. Often more profitable for service businesses with low expenses.
- Standard VAT rate: 20%
- Compulsory registration threshold: £90,000 rolling turnover (2024)
- Flat Rate Scheme: simpler admin, fixed sector rate (e.g. 14.5% consultancy)
- VAT-exempt sectors: education, healthcare, financial services