What is VAT?

Value Added Tax — a consumption tax added to the price of goods and services at each stage of production, collected by businesses and remitted to tax authorities.

What Is VAT?

Value Added Tax (VAT) is a consumption tax levied on goods and services. Unlike US sales tax (which is only charged at final sale), VAT is collected at every stage of the supply chain, with businesses reclaiming the VAT they paid on their inputs.

In the UK the standard VAT rate is 20%. EU rates vary: 19% (Germany), 20% (France), 23% (Ireland). Other countries have their own systems (e.g. GST in Australia/Canada).

When Must Freelancers Register for VAT?

UK: You must register when your taxable turnover exceeds £90,000 in any 12-month period (2024/25 threshold).

EU: Each country has its own registration threshold. Cross-border B2C sales above €10,000/year may require EU VAT registration or use of the One Stop Shop (OSS) scheme.

US: No federal VAT. State sales tax may apply depending on your state and the nature of your services.

VAT on Invoices

Once registered, you must:

1. Add VAT to your invoice (e.g., £1,000 + £200 VAT = £1,200 total)

2. Show your VAT registration number on invoices

3. File VAT returns (typically quarterly) and remit the collected VAT

Reverse Charge for International Clients

When billing B2B clients in other EU countries, the reverse charge mechanism applies — you invoice without VAT, and the client self-accounts for VAT. This simplifies cross-border billing significantly.