The sole trader, VAT and when to incorporate

Are you a sole trader? Thinking about switching to a limited company?

What about VAT registration?

Whether you’re a sole trader or a limited company, you must register for VAT if your taxable turnover is more than £85,000, or if you expect to go over this rolling threshold in the next thirty days.

When you convert to a limited company, however, your supplies as a non-VAT registered sole trader don't count towards the turnover calculation.

This might influence the sole trader’s thinking around when to convert.

If the sole trader is a taxable person at the time of the transfer i.e. VAT-registered, or is required to be VAT-registered, then the limited company is considered to have run the business before as well as after incorporation. Supplies before the transfer took place do count towards the £85,000 in this scenario.

Use forms VAT68 and VAT1 to ask HMRC to transfer the VAT registration and to continue to use the existing VAT registration number. You may also carry out this task online.

Alternatively, you can cancel your VAT registration and re-register, again either online, or by completing VAT7 and VAT1 forms.

The relevant section in the HMRC manual (Transfers of going concerns) is here:

https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg29250

There is more on how to transfer your VAT registration or to cancel and re-register here:

https://www.gov.uk/government/publications/vat-notice-70011-cancelling-your-registration/vat-notice-70011-cancelling-your-registration