Selling Online or Going Self-Employed? When to Register for VAT

This article has been published as part of an advertising collaboration.

You might start selling handmade gifts online or taking on freelance work to bring in some extra money, then find the orders growing into a business. That doesn't mean you automatically need to register for VAT, but a UK-established business generally must register when its VAT-taxable turnover exceeds £90,000 over the previous 12 months. There's also a separate test if you expect to exceed that amount in the next 30 days alone, so a large new contract can bring registration forward.

VAT stands for Value Added Tax, a tax charged on many goods and services by registered businesses. It's separate from the Income Tax you might owe on your earnings, which means you could need to report your self-employed income long before VAT registration becomes necessary. This guide gives general information, rather than advice on your own tax position; use the linked HM Revenue & Customs guidance, from the UK's tax authority, or get advice if your circumstances are more complicated.

What counts towards the VAT registration threshold?

VAT-taxable turnover means the value of sales that count for VAT purposes, before deducting your business costs. If you make £95,000 in taxable sales and spend £60,000 on stock and other expenses, the £35,000 left is your profit, but your sales still exceed the threshold. Taking the costs off first would give you the wrong figure to monitor.

The standard VAT rate is 20%, with reduced and zero rates applying to qualifying goods and services. Zero-rated sales still count towards taxable turnover, even though the VAT rate is 0%; exempt sales generally don't. If you sell a mixture, establish which category each product or service belongs to before adding up your total.

Sales from the same business need to be considered together, whether customers buy through eBay, Etsy, Amazon or your own website. A sole trader with more than one business activity generally combines their taxable turnover across those activities, too. The detailed VAT registration rules cover this, along with exceptions and situations such as taking over an existing business.

When do you need to register for VAT?

The two main compulsory registration tests look backwards over the previous 12 months and forwards over the next 30 days. The 12-month test doesn't restart on the 6th of April or at the start of your accounting year. At each month end, add that month's taxable turnover to the previous 11 months, so an older month drops out as the newest one is added.

If that running total exceeds £90,000, you must register within 30 days of the end of the month in which you went over. Your registration normally takes effect from the first day of the second month after that. For example, if you first exceed the threshold during October, the registration deadline is the 30th of November and the effective registration date is the 1st of December.

The forward-looking test applies if you expect more than £90,000 in taxable turnover in the next 30 days alone. You must register by the end of that period, and registration takes effect from the date you realised you would exceed the threshold. Don't wait until your year-end accounts are prepared if either test applies.

Does selling online mean you need to register with HMRC?

Selling your old clothes or furniture is different from buying stock or making products to sell for a profit. A clear-out doesn't automatically make you a trader, while regularly sourcing items to resell can amount to a business. Separate Capital Gains Tax rules can apply to some valuable personal possessions, so a high-value sale may need checking even when you aren't trading.

Online platforms may collect and report sellers' information to HMRC, but a report doesn't automatically mean you owe tax. Keep records that show what you sold and whether it was personal property or business stock. Our side-hustle tax guide explains more about reporting extra earnings.

For an individual running a trade, gross trading income above £1,000 in a tax year generally needs to be reported through Self Assessment. Gross means before deducting expenses, and the allowance applies across your trades rather than separately to each app or website. Exceptions apply to the allowance, and registering doesn't necessarily mean you'll have tax to pay.

You can find the relevant registration and return guidance through Self Assessment with HMRC. Registering there doesn't register you for VAT, and being below the VAT threshold doesn't remove your Income Tax responsibilities. Keeping those two processes separate will help you avoid waiting for £90,000 of sales before reporting a much smaller trading income.

What changes once you're VAT registered?

Registration affects both your prices and your record-keeping. You'll need to account for VAT on relevant sales and submit VAT returns, usually every three months, and you may be able to reclaim eligible VAT paid on business purchases. The amount paid to HMRC is usually the VAT charged to customers less the VAT you can reclaim, although different VAT schemes have their own calculations.

For a standard-rated product, a price of £100 before VAT becomes £120 with VAT added. If you keep the customer's final price at £100 instead, that price contains £16.67 VAT, leaving £83.33 before other costs and any eligible VAT recovery. This is why it's worth reviewing your margins before registration takes effect, particularly when your customers are members of the public who can't reclaim the VAT.

Voluntary registration below the threshold can help some businesses reclaim VAT on purchases, but it also brings the responsibility to charge and account for VAT where required. It won't automatically leave you better off. Compare the recoverable VAT with the effect on your prices, customer base and administration costs before choosing it.

What if you sell overseas or import goods?

The £90,000 threshold isn't a universal allowance for every business selling to UK customers. Businesses established outside the UK can face registration requirements without that threshold, while imports and overseas stock bring separate rules. Where the goods are located, where the customer is and whether a marketplace handles the sale can all change who accounts for VAT.

For example, online marketplaces generally account for VAT on qualifying consignments worth £135 or less imported for sale to consumers in Great Britain. That limit applies to the whole consignment, not each item, and there are exceptions, including particular business-to-business sales. Northern Ireland has different arrangements, so don't assume the same treatment applies to every UK delivery.

If you're holding stock abroad or selling across several countries, a specialist can help identify the registrations and returns involved. Easytax offers international VAT compliance services covering work such as registrations and returns. Ask what countries and tasks a quote covers, rather than assuming every new UK sole trader needs an overseas VAT representative.

How do you register, and do you need a limited company?

You can apply for VAT registration through GOV.UK, either yourself or using an authorised agent. Prepare your business details and turnover figures, including when you became liable to register. After registration, you'll usually need digital VAT records and compatible software for returns under Making Tax Digital, unless an exemption applies.

You don't need to form a limited company simply to sell online or register for VAT. A sole trader runs a business personally and is responsible for its debts, while a limited company is a separate legal entity with extra reporting duties. Forming a limited company involves registering with Companies House; it isn't just another name for registering as self-employed with HMRC.

Start by putting your monthly taxable sales in one place, including orders from every sales channel. If you're approaching the threshold, review your prices and record-keeping now, rather than waiting for the next tax return. That gives you time to establish the correct registration date and work out what VAT will mean for the money your business keeps.

Frequently asked questions

Do I need to register for VAT if I'm self-employed?

Being self-employed doesn't automatically mean you must register for VAT. For a UK-established business, the main tests are whether taxable turnover has exceeded £90,000 over the previous 12 months or will exceed £90,000 in the next 30 days alone.

Is the VAT threshold based on turnover or profit?

It's based on VAT-taxable turnover, before business expenses are deducted. A business with £95,000 in taxable sales and £60,000 in costs has £35,000 profit, but its sales still exceed the registration threshold.

Is the first £90,000 VAT free once I'm registered?

No. The threshold determines when registration becomes compulsory; it isn't an annual allowance you deduct from sales after registering. You account for VAT on relevant sales from your effective registration date.

Can I register for VAT below the threshold?

Yes, you can apply voluntarily if you make qualifying taxable supplies. You'll then take on VAT responsibilities as well as the ability to reclaim eligible VAT on purchases.

Does an online marketplace reporting my sales mean I owe tax?

No. A platform reporting your sales to HMRC doesn't automatically create a tax bill. Whether tax is due depends on your activity and circumstances, including whether you're trading or selling your own unwanted possessions.