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VAT for builders: when to register, schemes and returns

Last checked 30-10-2026. A plain guide, not legal advice: check the official guidance below for your job.

You must register for VAT when your taxable turnover for the last 12 months goes over £90,000, or when you expect to go over it in the next 30 days alone. Once registered, you keep digital records and file returns with Making Tax Digital software, usually every quarter.

When you must register

The threshold is £90,000 of VAT taxable turnover. That is everything you sell that is not exempt from VAT, so zero-rated work, such as building new homes, counts even though you charge no VAT on it. There are two tests:

  • Looking back: at the end of any month, your taxable turnover for the last 12 months is over £90,000. Register within 30 days of the end of that month. Your registration takes effect from the first day of the second month after you went over.
  • Looking ahead: you expect your taxable turnover in the next 30 days alone to be over £90,000, for example because a large job will be invoiced and paid in that time. Register by the end of that 30-day period. Your registration takes effect from the date you realised.

If you take over a business, you must register if the combined taxable turnover of the new business and your existing one goes over the threshold.

Register late and you must pay VAT on the sales you made since the date you should have registered, whether or not you charged it, and you may get a penalty. If you go over only because of a one-off, you can ask HMRC for an exception, with evidence that your turnover will not go over £88,000 in the next 12 months.

You can cancel your registration once your taxable turnover is below £88,000.

Registering voluntarily

You can register while your turnover is under £90,000. Whether that helps depends on who pays you.

  • It can help if most of your customers are VAT-registered, such as main contractors and commercial clients, because they can reclaim the VAT you charge. You can then reclaim VAT on your business purchases, such as materials and tools.
  • It can help a subcontractor whose work falls under the reverse charge. You charge no VAT on those sales, but you can reclaim VAT on what you buy, so HMRC will often owe you money.
  • It usually hurts if most of your customers are homeowners. They cannot reclaim VAT, so either your price goes up or your margin goes down.
  • Either way, you take on the software, the returns and the penalties for being late.

How to register

Most businesses register online with a Government Gateway user ID and password. You can save the application and finish it later. Some cases still use form VAT1 by post.

HMRC sends a 9-digit VAT number, your effective date of registration and details of your first return. Until the number arrives you cannot show VAT on an invoice. GOV.UK says you can raise your prices to cover it and then reissue the invoices showing VAT once you have the number.

If you change from sole trader to limited company, you can keep the same VAT number by transferring the registration on form VAT68, which usually takes about 3 weeks, or you can register the company afresh. Our guide on whether a builder should be a limited company covers the rest.

Making Tax Digital, returns and deadlines

All VAT-registered businesses must use compatible software to keep their VAT records and send their returns. If you keep your figures in a spreadsheet, bridging software can link it to HMRC. Paper returns are only for those exempt, for example on religious grounds or because age, disability or no internet where you live stops you using a computer.

  • You usually send a return every 3 months.
  • The return and the payment are both due 1 calendar month and 7 days after the end of the period. The money must have reached HMRC by then, and you must pay electronically.
  • Late returns earn penalty points. At 4 points for quarterly returns (2 for annual, 5 for monthly) you get a £200 penalty, and another £200 for each later late return.
  • Late payment: if the VAT is still unpaid after day 15, there is a penalty of 3% of what was outstanding at day 15. After day 30, another 3% of what was outstanding at day 30, then a daily penalty at 10% a year from day 31. Interest also runs from the first day the payment is late.

Schemes: cash, annual and flat rate

  • Cash accounting: you pay VAT on sales when the customer pays you, and reclaim VAT on purchases when you pay the supplier. You can join if you expect taxable turnover of £1.35 million or less in the next 12 months, and must leave once it is over £1.6 million. You do not need to tell HMRC you are using it. It helps when customers pay slowly.
  • Annual accounting: you make advance payments, either 9 monthly payments of 10% of your estimated VAT bill or 3 quarterly payments of 25%, and send one return a year, due 2 months after the end of your accounting year. The same £1.35 million joining and £1.6 million leaving limits apply.
  • Flat rate: you pay HMRC a fixed percentage of your VAT-inclusive turnover and generally cannot reclaim VAT on purchases, except some capital assets over £2,000. You can join if you expect taxable turnover of £150,000 or less, excluding VAT, in the next 12 months. You must leave if, on the anniversary of joining, your turnover in the last 12 months was over £230,000 including VAT.

The flat rates for builders, from GOV.UK:

  • labour-only building or construction services, meaning the materials are less than 10% of the turnover for those services: 14.5%
  • general building or construction services: 9.5%
  • any business that is a limited cost business: 16.5%. You are one if what you spend on goods is less than 2% of your turnover, or more than 2% but less than £1,000 a year
  • in your first year of VAT registration you get 1% off your rate

How the reverse charge changes the choice

If you are a subcontractor working for VAT-registered contractors under CIS, much of your work may fall under the domestic reverse charge. That affects the schemes:

  • You cannot use cash accounting for reverse charge sales. HMRC also says subcontractors whose sales are mostly reverse charge may not benefit from it, because they reclaim VAT on purchases only once they have paid.
  • Reverse charge sales are left out of the flat rate calculation and worked out separately. HMRC's manual notes you still cannot recover VAT on materials and overheads while on the flat rate scheme.
  • Because a reverse charge subcontractor often ends up being owed VAT, the GOV.UK reverse charge guidance asks you to decide whether to move to monthly returns, which bring repayments round sooner.

A builder who works mostly for homeowners is not affected by the reverse charge, and the flat rate scheme may be worth comparing with normal accounting. Run your own figures both ways with an accountant before you choose.

Which rate to charge on the work itself is covered in our guide on VAT on building work. Our guide on the VAT domestic reverse charge for building work covers when it applies and what goes on the invoice.

Worked example: Brunel Terrace

A builder doing kitchen and extension work at Brunel Terrace and nearby checks their turnover at the end of each month. The figures are invented.

  • Taxable turnover for 01-09-2025 to 31-08-2026: £92,400. That is over £90,000 at the end of August 2026.
  • Deadline to register: 30 days after 31-08-2026, so by 30-09-2026.
  • Effective date: the first day of the second month after going over, so 01-10-2026. Work charged from then on carries VAT at the right rate.
  • If the first VAT period runs 01-10-2026 to 31-12-2026, the return and the payment are due by 07-02-2027 (1 calendar month and 7 days after 31-12-2026).

Now the looking-ahead test. On 02-11-2026 a different builder, not yet registered, agrees a job that will be invoiced and paid at £95,000 within the next 30 days. They must register by 01-12-2026, and the registration takes effect from 02-11-2026.

And the flat rate sum. Suppose the first builder joins the flat rate scheme for general building and takes £30,000 including VAT in a quarter. At 9.5% they pay HMRC £30,000 x 0.095 = £2,850. In their first year of registration the rate is 8.5%, so £30,000 x 0.085 = £2,550.

Sources

Tools that help

Quotes PROBuild a quote from your own templates, by the hour or in lump sums, with VAT added up, then invoice from it in one click. In SiteHelm PRO.Spreadsheets PROA spreadsheet like Excel, with cost trackers, timesheets, material schedules, valuations and CIS payments ready to fill in. Opens and saves Excel files.Book of rates PROExample UK rates for measured work, plant hire and prelims, each with its source and date. Check a price on site; change one and it becomes yours.

More guides

What should I put in a quote for building work?What a quote for building work should say: scope, exclusions, drawings, price and VAT, validity, payment stages, dates, provisional sums and variations.What are a payment notice and a pay less notice?A payment notice states the sum due, and a pay less notice cuts it. Who gives each, the 5 and 7 day timings, and what happens if no notice is given.Can a builder charge interest on a late business payment?Another business pays late? You can claim 8% over base rate plus £40, £70 or £100 under the 1998 Act. When it applies and how it sits with your contract.

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