VAT for plumbers and electricians: when you need to register

The VAT registration threshold

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period (as of April 2024). This threshold is calculated on your total business income — including both labour and materials you supply to customers. The common mistake among tradespeople is thinking the threshold applies only to labour. If you charge a customer £3,000 for a bathroom installation that includes £1,800 of materials, all £3,000 counts towards your taxable turnover.

How to monitor your turnover

HMRC does not calculate this for you. It's your responsibility to monitor your rolling 12-month turnover and register when you approach the threshold. Check your total income every month — at the end of each month, add up the past 12 months and compare to the threshold.

If you breach the threshold in a single month, you must notify HMRC within 30 days. Failure to do so results in a penalty calculated on the VAT you should have been charging from the breach date.

Standard-rated vs zero-rated work

Not all trade work is charged at the standard 20% VAT rate. The distinction that matters most for plumbers and electricians:

• Repair and maintenance work on existing buildings: Standard rated at 20%
• New build residential construction: Zero-rated — you charge 0% VAT to the main contractor or developer. You can still reclaim input VAT on your materials, which is a benefit.
• Renovation of empty dwellings (unoccupied for 2+ years): Reduced rate of 5%
• Installation of energy-saving materials: 0% from April 2022 — heat pumps, solar panels, insulation, etc.

If you work predominantly on new builds, you may find that VAT registration is financially beneficial even before you hit the threshold — because you can reclaim input VAT on materials without having to charge output VAT to your customers.

VAT on materials vs labour

Whether you buy materials and charge them to the customer, or the customer provides materials and you labour-only, affects your VAT position. If you supply and fit, both the materials and labour are generally subject to the same VAT rate. If you labour-only, only your labour invoice is relevant. Structuring jobs where the customer buys their own materials is sometimes used to manage turnover, but should be done for genuine commercial reasons rather than solely to avoid VAT registration — HMRC may challenge artificial arrangements.

Voluntary registration

You can register for VAT voluntarily before reaching the threshold. This makes sense if:

• Your customer base is primarily VAT-registered businesses who can reclaim the VAT anyway
• You have significant material costs and would benefit from reclaiming input VAT
• You work primarily on new builds and want to reclaim materials VAT

Speak to an accountant before registering voluntarily — the admin burden and impact on pricing for domestic customers must be weighed against the input VAT benefit.