Who Needs to Worry About VAT?
VAT applies to most goods and services supplied in the UK. If your taxable turnover (total sales subject to VAT, not just profit) exceeds the current registration threshold—£90,000 as of 2025—you must register for VAT with HMRC. This rule applies to individuals as well as companies, so even part-time side hustlers can be caught out if their business takes off.
Key points:
- The VAT threshold is based on a rolling 12-month period, not the calendar year.
- If you expect to exceed the threshold in the next 30 days alone, you must register immediately.
- Voluntary registration is possible below the threshold and may be beneficial for some.
Common Pitfalls for Gig Workers and Freelancers
1. Multiple Income Streams
If you run several side gigs (e.g., freelance writing plus selling crafts online), HMRC considers the total turnover from all your business activities. You can’t “split” businesses to stay under the threshold if they’re essentially run by the same person.
2. Digital Platforms and VAT
Many gig workers use platforms like Uber, Airbnb, Fiverr, or Amazon. Some platforms handle VAT on your behalf for certain transactions, but not always. For example:
- Uber drivers: Uber collects VAT from riders and remits it, but you may still need to register and account for VAT on your own income.
- Etsy sellers: You’re responsible for VAT on your sales unless Etsy acts as the deemed supplier for certain cross-border transactions.
Tip: Always check the VAT treatment on each platform and keep clear records.
3. International Sales and Digital Services
Selling digital products or services to customers outside the UK? Different VAT rules may apply, including the need to register for VAT in other countries or use special schemes like the Non-Union OSS for EU sales.
4. Expenses and VAT Recovery
Registered freelancers can reclaim VAT on business expenses, but only if those expenses are directly related to taxable sales. Common examples include:
- Software subscriptions
- Office supplies
- Marketing costs
Personal expenses or mixed-use items require careful apportionment.
Digital Record-Keeping and Making Tax Digital (MTD)
Since April 2022, most VAT-registered businesses—including sole traders and freelancers—must comply with Making Tax Digital requirements:
- Keep digital records of sales and expenses
- Use MTD-compatible software to file VAT returns
Failure to comply can result in penalties, even if your VAT calculations are correct.
Practical Steps for Gig Economy Sellers
- Track All Income Streams: Use spreadsheets or accounting software to monitor your rolling 12-month turnover.
- Understand Platform Rules: Read the VAT guidance for every platform you use.
- Consider Voluntary Registration: If you incur significant business expenses, voluntary VAT registration may allow you to reclaim VAT and improve cash flow.
- Stay on Top of Deadlines: Register promptly if you approach the threshold, and file returns on time.
- Seek Professional Advice: VAT in the gig economy can be complex—don’t hesitate to consult an accountant or tax advisor.
Conclusion
VAT compliance doesn’t have to be a headache for gig workers and freelancers. By staying informed, keeping accurate records, and understanding your obligations, you can focus on growing your business with confidence.
#UKVAT #GigEconomy #Freelancers #TaxCompliance #MakingTaxDigital
Sources: HMRC, ICAEW, Tax Policy Associates, IPSE, Gov.uk VAT guidance