VAT Registration – for VAs!

It is very unlikely that you will have to register for VAT, at least initially, as a virtual assistant. You only have to register if:

  • Your turnover (the amount you invoice your clients) for the previous 12 months is more than £85,000, the threshold at the time of writing, OR
  • You expect to go over the threshold in a single 30 day period

VAT is a tax that some businesses have to charge and collect from their clients and pay on their sales. A business only has to pay VAT if it is registered with HMRC for VAT and it only has to register if its total VATable sales exceed the threshold set each year by HMRC. The threshold changes - usually once a year announced in the Budget - so you should regularly check your turnover against the current threshold.

Firstly, we wanted to clear up a little bit of confusion caused recently by a blog post on another VA site:

VAT registration and Limited Company incorporation are two different things.

  • You can be a sole trader and VAT registered.
  • You can be a Limited Company and not registered for VAT.
  • You can voluntarily register for VAT even if you earn less than £85k (but if you turnover more than £85k in a single year, by law, you must register - this will apply to less than 3%* of VAs).

HMRC defines VAT registration here: https://www.gov.uk/vat-businesses

If your business is registered you have to charge VAT on your sales invoices and you are entitled to claim back some of the VAT you pay your suppliers. If most of your clients are VAT registered themselves (and can, therefore, claim back the VAT you charge them) then you can voluntarily register so you can claim back the VAT you are charged by other businesses. But, if your clients are smaller businesses who are not VAT registered, you won’t want to register as this will mean you have to charge VAT to your clients, and as they can’t claim it back, it comes straight out of their pocket.

  • Example 1: A non-registered prospect comparing two VAs charging £25/hour, if one is VAT registered means they'd be paying £30/hour (as the hourly charge would be £25+20% VAT). 
  • Example 2: A VAT registered client comparing the same 2 VAs won't see the difference of VAT registration because they offset the VAT element against their own VAT income, but the VAT registered VA claiming the "Business Services rate" will be earning £28/hour once you add in the element of VAT they retain.

Some VAs who have very few VAT-able expenses can register for the flat rate scheme (so they charge VAT on their invoices at 20% and pass just 12-14.5% (depending on what services they offer) of their VAT back to HMRC. Essentially they are making an extra 5.5%-8% on each invoice.

So VAT registration depends on your target market - if it's small businesses/sole traders it will be a negative, putting off clients.  If your target is VAT registered businesses, it may well give you an additional element of profit.

There are ongoing requirements of being VAT registered such as:

  1. You have to complete a quarterly online VAT return using software compatible with Making Tax Digital
  2. Your invoices must be in a prescribed format
  3. Not all VAT you pay to your suppliers can be reclaimed
  4. You must get a proper VAT invoice from your suppliers in order to reclaim the VAT
  5. HMRC also have the right to inspect your books to make sure you are doing everything correctly.

And do I register for VAT as a Virtual Assistant?

In terms of voluntary VAT registration, it very much depends on who your target market is and what you expect your turnover to be...

If you are planning on earning over £85k annually, you should probably build in the expectation of paying a higher than average VA rate.  You can then decide whether or not to pass on the additional VAT element to your clients or discount their fees when you become registered so they end up paying the same cost.   Bear in mind just 3%* of the industry would earn this amount - it's not impossible, but is highly unusual.

If you want to work with non-VAT registered businesses, you may struggle to win clients against a background of non-VAT registered VAs who seem less expensive than you.  So if the target market is smaller businesses, we would suggest not voluntarily registering for VAT under the £85k limit.

Over £85k you have to register by law - so bear this in mind when working on your business plan - at that level, extra admin time and responsibilities apply.  Lots of VAs choose to remain relatively small to avoid this.

(* Source: UK VA Survey v10 2019)

HMRC Figures correct at time of writing in June 2019 - please check directly with HMRC.  SVA cannot be held responsible for any decisions taken based on this article.

Noel Guilford

Noel Guilford is a chartered accountant and co-founder of My Business HQ Limited a company which provides training for virtual assistants and bookkeepers via My VA Business and My Bookkeeping Business.

He can be contacted at noel@mybookkeepingbusiness.co.uk.

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