SiteIt's a Sunday night and you're doing the month's invoices. Breakdowns, two weeks of shift cover and a shutdown. It's been the best year you've had since you went contract.
Then you add up the last twelve months on the back of an envelope, and the number's bigger than you thought. Somebody on site mentioned VAT last week. You didn't really listen.
Plenty of engineers cross the VAT threshold without noticing. The rule isn't hard. What catches people is that it runs on a rolling twelve months, not the tax year, and nobody sends you a reminder.
The threshold and the rolling twelve months
You must register for VAT if your taxable turnover for the last 12 months goes over £90,000* (GOV.UK). Turnover means what you bill, before expenses. Fuel, tools and insurance don't come off it.
Say you bill £400 a day, five days a week, for 46 weeks. That's £92,000. Over the threshold, in your first full year.
So check it every month. Add up the last 12 months of invoices, not the tax year. A spreadsheet with one line per month does the job.
There's a second test that's easy to miss. You must also register if you expect your turnover to go over £90,000* in the next 30 days alone (GOV.UK). A big shutdown contract can trigger that on its own.
The dates once you've crossed it
If you went over in the last 12 months, you have to register within 30 days* of the end of the month you went over. Your registration then starts on the first day of the second month after.
GOV.UK's example: you go over on 15 July. You must register by 30 August, and you're registered from 1 September (GOV.UK).
If it's the 30-day forward test, you register by the end of that 30 days. The registration starts from the day you realised, not the day you go over.
Late is expensive
If you register late, you must pay VAT on any sales since the date you should have registered. You might pay a penalty as well (GOV.UK).
That VAT comes out of money you've already been paid. You can try to recover it from customers, but sites don't always welcome a surprise invoice for last spring. Our view: if you're within a few thousand of the line, register.
If you only went over the threshold for a short time, you can ask HMRC for a registration exception.
What changes on the day
As a VAT-registered business you must charge VAT on what you sell, at the right rate (GOV.UK). For engineering labour that will normally be the standard rate of 20%* (GOV.UK).
You get a 9-digit VAT number that must go on every invoice. You can't add VAT to your invoices until it arrives. You can raise your prices to cover the VAT, then reissue the invoice once you have the number (GOV.UK). HMRC will sign you up for Making Tax Digital for VAT, so you'll need software that works with it.
Most businesses then send a VAT return every 3 months. The return and the payment are usually due one calendar month and 7 days after the end of the period (GOV.UK). You still send one when there's nothing to pay.
What it means for your rate
Most of the sites you work for will be VAT registered themselves. A VAT-registered customer can usually claim back the VAT you charge on its own VAT return. GOV.UK's example shows a customer who "can now reclaim" the VAT on a reissued invoice.
So for most sites, adding 20% doesn't really cost them anything. A plant losing money every hour the line is down cares more about getting you there. Check your contracts say your rates are plus VAT. Day rates covers how to quote.
The other side is the VAT on what you buy. Once you're registered you can reclaim VAT on business purchases. If something is part personal, you can only claim the business share (GOV.UK). You can also reclaim VAT on goods you bought in the last 4 years* and still have, and services from the last 6 months* before you registered (GOV.UK). That new test kit might be worth digging the receipt out for.
Two schemes worth a look
The Flat Rate Scheme lets you pay a fixed percentage of your turnover to HMRC instead of working out the difference. You keep what's left, but you can't reclaim VAT on purchases, apart from some capital assets over £2,000* (GOV.UK). You can join if your VAT turnover is £150,000* or less.
The catch for engineers is the limited cost business rule. If your spend on goods is under 2%* of turnover, or under £1,000* a year, you pay a flat 16.5%* (GOV.UK). A labour-only engineer can easily fall into that. Do the sums both ways before you join.
The Cash Accounting Scheme suits anyone with slow payers. You pay VAT on your sales when customers pay you, rather than when you invoice. You can join if your VAT taxable turnover is £1.35 million* or less (GOV.UK). If a site takes 60 days to pay, you're not funding HMRC in the meantime. Invoicing and getting paid on time and late payment cover the other half of that problem.
If work drops off
If your taxable turnover falls below £88,000*, you can ask HMRC to cancel your registration (GOV.UK). Some engineers stay registered anyway. It keeps things simple if next year is busy again.
What to do on Monday
- Add up your invoices for the last 12 months, and set a monthly reminder to do it again.
- If you're close to £90,000, check your contracts and quotes say "plus VAT".
- Find receipts for tools and kit you've bought in the last few years and still have.
- Run the Flat Rate and standard sums side by side before you pick a scheme.
* The VAT registration and cancellation thresholds, registration deadlines, the standard rate, Flat Rate Scheme limits and rates, the Cash Accounting Scheme limit and the pre-registration reclaim periods correct as of 2 November 2026. Check GOV.UK's guide to registering for VAT and the VAT Flat Rate Scheme for the latest.