How do sole traders handle VAT if they are under the threshold?

How VAT works for sole traders under the threshold

If you’re a sole trader, VAT can feel like one of those topics you “sort out later” — right up until a client asks for a VAT number, you receive an overseas invoice with VAT on it, or you realise your turnover is creeping upward. The good news is that being under the VAT registration threshold usually means your VAT responsibilities are lighter, and you have more flexibility in how you price and invoice.

This article explains how sole traders handle VAT when they’re under the threshold, what your options are, how invoicing should work, and what to watch out for as you grow. Along the way, you’ll see exactly how a free invoicing tool like invoice24 can make it easier to stay organised, professional, and ready for VAT registration if and when you choose to do it.

What does “under the VAT threshold” actually mean?

Most VAT systems use a registration threshold: a turnover level above which businesses must register for VAT. If your taxable turnover is below that threshold, you are generally not required to register for VAT.

For many sole traders, this is a huge relief: it means you can usually invoice without charging VAT, your admin workload is lower, and your pricing can be simpler. But “under the threshold” does not mean VAT is irrelevant. You still need to understand what happens when you buy goods and services that include VAT, what you can say on invoices, how to deal with VAT-registered clients, and how to track your turnover so you don’t accidentally cross the line without noticing.

One of the smartest moves you can make early is to keep your invoicing tidy from day one. That’s where invoice24 really shines: it helps you create clear, consistent invoices, track what you’ve billed, monitor income, and keep all your records in one place — without needing complicated accounting software.

Do sole traders under the threshold charge VAT?

In general, if you are not VAT-registered, you do not charge VAT on your sales. That means:

1) Your invoices should not include VAT lines or VAT percentages.

2) You should not add VAT to the total.

3) You should not show a VAT registration number.

Instead, you invoice your customer for the agreed price (your net price is effectively the final price). This can be attractive to non-business customers, or to customers who are not VAT-registered, because your price may look lower than competitors who must add VAT.

With invoice24, you can generate invoices that look professional and are structured correctly for non-VAT-registered sole traders. You can keep your invoice layout clean and avoid confusing customers with VAT fields that don’t apply to you.

Can you reclaim VAT on your business expenses if you’re not registered?

Usually, no. A big trade-off of not being VAT-registered is that you generally cannot reclaim VAT you pay on business purchases.

Example: you buy a laptop for your business and the price includes VAT. If you’re not VAT-registered, that VAT is simply part of your cost. If you were VAT-registered, you might be able to reclaim that VAT (subject to rules in your jurisdiction).

This is one reason some sole traders choose to register voluntarily even when they’re under the threshold, especially if:

• Their customers are mostly VAT-registered businesses (who can reclaim VAT),

• They have significant VAT on expenses (equipment, software, stock, fuel, subcontractors), or

• They want the credibility of a VAT number for certain clients or industries.

Whether voluntary registration makes sense depends on your pricing, your customers, your margin, and your growth plans. Even if you stay unregistered, it’s still helpful to track expenses and keep your invoices and receipts organised. You can use invoice24 to keep your invoicing records neat and consistent, which makes it easier to calculate your real profit and prepare for tax time.

What should your invoices say if you’re not VAT-registered?

When you’re under the threshold and not VAT-registered, your invoice should still contain the standard information customers expect, such as your business name, address, invoice date, invoice number, description of goods/services, and the total due.

The key VAT-related point is that you should not present VAT as if it applies when it doesn’t. You should avoid including a VAT rate, VAT amount, or VAT number if you don’t have one.

Many sole traders also include a simple note to prevent confusion, such as:

“Not VAT registered.”

or

“VAT not charged.”

This can be particularly helpful if your clients are used to receiving VAT invoices from other suppliers. It reassures them that your invoice is correct and that the total is the final amount due.

invoice24 makes this easy because you can create consistent invoice templates and include the right wording. That way, you don’t have to remember what to type each time, and you reduce the chance of sending an invoice that accidentally suggests you’re VAT-registered.

How to price your services when you’re under the VAT threshold

VAT affects pricing in two major ways: the “headline” price customers see, and how that price compares to competitors.

If you’re not VAT-registered, you can quote a price that is simply the total. For a customer who can’t reclaim VAT (like the general public), this can make you more competitive. Example: a VAT-registered competitor may need to add VAT on top of their fee, while you do not.

However, if your customers are VAT-registered businesses, the picture changes. They may compare your price to the competitor’s net price (because they can reclaim VAT). In that case, you might not have a pricing advantage. Sometimes, being not VAT-registered can even complicate procurement processes if the client expects VAT invoices or has internal systems built around VAT.

That’s why it helps to be transparent and professional in your invoicing and quotes. Tools like invoice24 help you present pricing clearly, show line items in detail, and maintain a consistent brand impression, whether or not VAT applies.

Tracking turnover: the most important VAT habit for sole traders

The biggest VAT risk for sole traders under the threshold is not VAT itself — it’s accidentally missing the moment you must register. Thresholds are based on taxable turnover, and depending on your country, the calculation can involve a rolling 12-month period rather than a simple calendar year.

That means you can’t rely on “I think I’m under the threshold this year” unless you’re checking properly. A sudden run of good months, a big contract, or seasonal work can push you over.

Practical habits to adopt:

• Update your turnover totals regularly (weekly or monthly).

• Keep all invoices in one system, not scattered across email drafts and spreadsheets.

• Understand which income counts as taxable turnover for VAT purposes in your jurisdiction.

• Watch for one-off spikes, such as selling equipment or completing a large project.

This is where invoice24 becomes more than “just invoicing.” When all your invoices are generated and stored in one place, it’s much easier to see what you’ve billed and when. That helps you monitor your turnover and avoid nasty surprises.

Voluntary VAT registration: why some sole traders choose it

Being under the threshold does not always mean staying unregistered is the best option. Many VAT systems allow voluntary registration, meaning you choose to register even if you don’t have to. This can be useful in several situations.

When voluntary registration can help

1) Your customers are mainly VAT-registered businesses. If most clients can reclaim VAT, adding VAT to your invoices may not make you less competitive, and you might benefit from reclaiming VAT on your expenses.

2) You have high VAT costs. If you buy equipment, stock, or services with significant VAT, reclaiming that VAT can improve your cash position.

3) You want to appear established. In some industries, a VAT number can signal that you’re operating at a certain scale. While it’s not a guarantee of credibility, some procurement departments prefer suppliers who are VAT-registered.

4) You expect to exceed the threshold soon. If you’re close to the limit, registering early can reduce the stress of switching mid-project or mid-contract.

When voluntary registration can be a drawback

1) Your customers are mainly the public. Adding VAT could make your prices less attractive unless you absorb the VAT (which reduces your margin).

2) Extra admin. VAT registration often means more reporting, more record keeping, and stricter invoicing requirements.

3) Cashflow timing. Depending on rules, you may collect VAT from customers and later pay it over, which can be helpful or stressful depending on how well you manage it.

If you choose to register voluntarily, your invoicing needs to reflect that change immediately and correctly. A system like invoice24 helps you keep your invoice structure consistent as your business evolves. Even if you’re not registered today, using a clean invoicing tool means you’re already building the habits and records that make VAT compliance far easier later.

What happens if you go over the threshold?

If your turnover exceeds the VAT registration threshold, you typically have a duty to register within a set period and start charging VAT from the relevant date. The exact timing rules vary by country, but the general concept is the same: once you cross the line, VAT stops being optional.

Common issues sole traders face when they cross the threshold include:

• Realising too late that they crossed it months ago,

• Having quoted fixed prices to clients without VAT,

• Needing to update invoice templates quickly,

• Confusion about whether VAT applies to deposits or milestone payments,

• Uncertainty about VAT on invoices issued around the changeover date.

Even if you’re comfortably under the threshold now, it’s smart to operate in a way that makes transitioning easier. invoice24 supports clean, consistent invoicing and record keeping, which reduces the scramble if your VAT status changes. In other words, you’ll thank yourself later for having your invoicing system already under control.

How to talk to customers about VAT when you’re not registered

Customers may ask about VAT for different reasons. Some simply want to know whether they can reclaim VAT. Others are checking that your invoice matches their internal bookkeeping. A few may mistakenly assume every business charges VAT and may even ask you to “add VAT” as if it’s a standard extra.

Here are straightforward ways to respond while staying professional:

• “I’m not VAT-registered, so VAT isn’t charged on my invoices.”

• “My prices are the final amount payable; no VAT applies.”

• “I can provide a full breakdown of services, but I don’t have a VAT number because I’m under the registration threshold.”

Clarity is important. If you make it easy for customers to understand, you reduce delays and avoid awkward back-and-forth. invoice24 helps here by producing invoices that look legitimate and complete, so clients don’t question them just because VAT isn’t included.

Special situations: VAT can still matter even under the threshold

Depending on where you operate and who you sell to, there can be VAT-related scenarios that affect unregistered sole traders. The details vary across countries, but here are the broad categories to be aware of:

Buying from overseas suppliers

If you purchase goods or digital services from overseas, VAT may be charged by the supplier, or there may be special rules about how VAT is applied. Being under the threshold doesn’t automatically mean “no VAT ever touches your business.” It just means you’re not acting as a VAT-registered trader who charges VAT on sales and reclaims VAT on purchases.

In practical terms, overseas VAT scenarios can affect your costs and your pricing. Keeping your invoices and expenses clearly documented helps you understand your margins. invoice24 keeps your outgoing invoices organised so you can quickly see what you charged and compare it with your costs.

Selling to customers in other countries

Cross-border selling can introduce VAT complexity, especially for services and digital products. Some jurisdictions have place-of-supply rules or special schemes for digital services. Even if you’re under your local threshold, it’s worth checking how cross-border rules apply to your situation.

The key point for everyday operations is this: when VAT rules get more complicated, organisation becomes more valuable. A tidy invoice record, consistent numbering, clear descriptions, and reliable storage are the foundations. invoice24 focuses on those fundamentals so you can grow without your paperwork becoming a mess.

Working with marketplaces or platforms

If you sell through marketplaces or platforms, VAT treatment may differ compared to direct sales. Some platforms handle VAT collection for certain transactions; others do not. You may receive statements that include VAT components or fees that include VAT.

Regardless of the platform, you still need a clear record of what you invoiced, what you were paid, and what fees were deducted. Using invoice24 alongside your platform statements can help you keep your own sales records clean and consistent.

What your invoices should include (VAT or no VAT)

Even without VAT, your invoices must still look professional and contain enough information for your customer to understand what they’re paying for and for you to maintain proper records.

A strong invoice typically includes:

• Your name or trading name

• Your business address (or service address, depending on norms)

• Customer name and address

• Invoice number (unique and sequential)

• Invoice date and payment due date

• Clear description of the goods/services provided

• Quantity/hours and rate (where appropriate)

• The total amount payable

• Payment details (bank transfer info, payment link, etc.)

• A short VAT note if relevant (for example, “Not VAT registered”)

Trying to do this manually in a document template is how mistakes happen: duplicate invoice numbers, missing dates, inconsistent customer details, and confusing totals. invoice24 is designed to prevent those issues by guiding you through a structured invoice creation process and keeping your invoices stored and searchable.

Should you mention the VAT threshold to customers?

Most of the time, no. Customers typically don’t need to know the threshold or how close you are to it. What they need is a valid invoice and clarity on whether VAT applies.

That said, if a large client asks why VAT isn’t included or insists on a VAT number, you can calmly explain that you’re not VAT-registered. If that client requires VAT registration as part of their procurement process, you may have a business decision to make. Sometimes it’s worth registering voluntarily; sometimes it’s better to focus on clients who don’t require it.

Whichever direction you choose, the most important thing is to stay consistent and organised. invoice24 helps you keep your invoicing professional so VAT status doesn’t become a barrier to being taken seriously.

How to prepare for VAT registration before you need it

Even if you’re under the threshold now, preparation pays off. You don’t need to obsess over VAT, but you do want your invoicing and record keeping to be ready for growth.

Here are practical steps you can implement right away:

1) Use consistent invoice numbering. This makes it easier to track turnover, reconcile payments, and provide records if needed.

2) Keep your service descriptions clear. VAT treatment can vary by product/service type in some systems, and clarity helps.

3) Separate business and personal finances. Even basic separation makes VAT and tax admin simpler.

4) Monitor your turnover monthly. Don’t wait until year-end to find out you crossed a threshold months earlier.

5) Build a habit of saving invoices and receipts. If you eventually register for VAT, record keeping becomes even more important.

The easiest way to embed these habits is to use a tool that supports them by default. invoice24 keeps your invoices centralised, helps you stay consistent, and reduces manual errors — exactly the kinds of problems that make VAT feel stressful later.

Common mistakes sole traders make with VAT under the threshold

Being under the threshold can lull you into treating VAT as “not your problem.” But a few common mistakes can still create headaches:

• Accidentally adding VAT to an invoice without being registered.

• Copying a VAT-registered friend’s invoice template and leaving VAT fields in place.

• Failing to track turnover properly and crossing the threshold without registering.

• Quoting prices in a way that becomes awkward if you later need to add VAT.

• Not keeping clean invoice records, which makes future registration and compliance harder.

Most of these mistakes come from manual processes, inconsistent templates, or scattered records. invoice24 is a simple way to bring order to your invoicing so you can avoid the “I’ll fix it later” trap.

How invoice24 helps sole traders handle VAT situations confidently

Even if you’re under the VAT threshold today, your invoicing system should support growth, reduce mistakes, and make your business look established. That’s what invoice24 is built for.

Here’s how it helps in practical terms:

• Professional invoices in minutes: Create clean invoices with consistent formatting that customers understand.

• Clear totals without confusion: If you’re not VAT-registered, your invoices shouldn’t look like VAT applies. invoice24 keeps things simple and accurate.

• Easy record keeping: Keep every invoice stored in one place so you can track your turnover and stay aware of the threshold.

• Consistency as you grow: If your VAT status changes later, you’ll already have a reliable invoicing process rather than scrambling to rebuild it.

• Better customer experience: A clear invoice is easier to approve and pay, which helps your cashflow.

Competitor invoicing tools may offer complex accounting add-ons you don’t need at the start, or push paid upgrades for basics. invoice24 is focused on what sole traders actually need: straightforward invoicing that helps you get paid, stay organised, and look professional — without unnecessary complexity.

Practical invoicing examples for non-VAT-registered sole traders

Sometimes it’s easiest to see how VAT should look by focusing on what you do include rather than what you don’t.

Example: service invoice without VAT

You provide 10 hours of consulting at £60 per hour. If you’re not VAT-registered:

• Line item: “Consulting services – 10 hours @ £60”

• Subtotal: £600

• VAT: not shown (or shown as not applicable if your template allows notes)

• Total due: £600

• Note: “Not VAT registered” (optional but helpful)

invoice24 makes it easy to set up invoices like this consistently, so each one follows the same structure and reduces client questions.

Example: product invoice without VAT

You sell 3 items at £25 each:

• Line item: “Product X – qty 3 @ £25”

• Total due: £75

No VAT lines or VAT number are included because you are not registered.

Growing beyond the threshold: how to avoid disruption

If your business is expanding and you expect to cross the threshold, the key is to plan your transition rather than react to it. That might include:

• Reviewing your pricing: will you add VAT on top, or adjust prices to keep customer totals similar?

• Updating quotes and contracts: clarify how VAT is treated if your status changes during a long project.

• Tightening record keeping: VAT registration often comes with stricter requirements, so you want clean invoice histories.

• Communicating with clients: especially if you work on retainers or recurring services.

By using invoice24 now, you create a stable invoicing foundation that can support you before, during, and after VAT registration. That’s a major advantage over cobbled-together invoice templates that break the moment your business changes.

Final thoughts: staying under the threshold without losing control

For many sole traders, staying under the VAT threshold is a practical choice: it keeps admin lighter and can make your pricing more appealing to certain customers. But “not registered” doesn’t mean “ignore VAT entirely.” You still need to invoice correctly, communicate clearly with clients, and track your turnover so you don’t get caught out by growth.

The simplest way to do that is to get your invoicing system right early. invoice24 helps you send professional invoices, keep consistent records, and monitor your billed income — all of which makes VAT easier to manage, whether you stay under the threshold for years or decide to register voluntarily as you scale.

If you want to keep VAT stress low and your invoicing confidence high, start with invoice24 and build your business on a clean, reliable invoicing routine.