If you're just starting out as a therapist, you might have heard about VAT (Value Added Tax) but not be sure what it means for your business. Don’t worry—you’re not alone! Many new therapists have questions about when and how VAT applies to them. This post will break it down in simple terms so you know what to expect.
What Is VAT?
VAT (Value Added Tax) is a tax charged on most goods and services in the UK. If a business is VAT-registered, they must add VAT (usually 20%) to their prices and pass that money on to the government.
For example, if a VAT-registered massage therapist charges £50 for a treatment, they would need to add 20% VAT (£10), making the total cost to the customer £60. The therapist keeps the £50 and pays the £10 VAT to HMRC.
Who Has to Pay VAT?
Not all businesses need to charge VAT—only those that are VAT-registered. You must register for VAT if your taxable turnover (the amount of money your business makes from VAT-able services) goes over the government threshold, which is £90,000 per year (as of 2024).
Some businesses choose to register even if they don’t reach this amount. This can have benefits, such as being able to reclaim VAT on business expenses, but it also means you have to charge VAT on your services.
Who Doesn’t Need to Charge VAT?
If your business turnover is below £90,000 per year, you don’t have to register for VAT. That means you don’t need to add VAT to your prices, and you won’t have to deal with the admin of collecting and paying it to HMRC.
However, if your turnover is getting close to the threshold, you should keep an eye on it. If you go over, even by a little, you must register for VAT and start charging it.
How the VAT Process Works
1. You charge VAT on your services – Once registered, you must add VAT to your prices and issue VAT receipts if requested.
2. You collect the VAT from your customers – Your clients pay the VAT along with your service fee.
3. You pay the VAT to HMRC – Usually every 3 months, you submit a VAT return and pay HMRC the VAT you collected.
4. You may reclaim VAT on business expenses – If you buy business supplies (like massage oils, equipment, or rent a treatment room), you can claim back the VAT you paid on those items.
Example: When a VAT-Registered Business Pays VAT on Expenses
VAT is not a business tax—it’s a tax on the customer. As a VAT-registered business, you are simply collecting VAT for the government.
Let’s say you run a VAT-registered wellness clinic and you need to buy a treatment couch for your therapy room.
The supplier charges £500 for the couch, plus 20% VAT (£100), so the total cost to you is £600.
Because you are VAT-registered, you can claim back the £100 VAT when you submit your VAT return.
This means the couch effectively only costs you £500, as you will get the £100 VAT back from HMRC.
Now, let’s look at how this works with your customers:
A client books a massage for £50. You must add 20% VAT (£10), so they pay £60 in total.
You keep the £50 for your business and pay the £10 VAT to HMRC.
At the end of the VAT period (usually every three months), your VAT return will balance:
You paid £100 in VAT when buying your couch.
You collected £10 VAT per client from your customers.
If you had 10 clients that month, you collected £100 VAT from them.
Since you already paid £100 VAT on your couch purchase, you can offset this amount, meaning you owe HMRC nothing for that period.
This is why VAT isn’t a tax on businesses—it’s a tax on the end consumer. Businesses simply pass it along and reclaim what they’ve paid.
When Might You Have to Start Paying VAT?
If your business is growing and your turnover reaches £90,000 in a 12-month period, you must register for VAT. This is not based on a calendar year but on a rolling 12 months, so you need to monitor your income regularly.
Things to consider:
VAT will make your prices higher, which could affect your clients.
You might need an accountant to help with VAT returns.
You may be able to join the Flat Rate VAT Scheme, which simplifies VAT calculations for small businesses.
Final Thoughts: Speak to an Accountant
VAT can feel overwhelming, but you don’t have to figure it out alone. If you’re close to the VAT threshold or wondering if it’s beneficial to register voluntarily, speak to an accountant. They can help you decide the best approach for your business and make sure you stay on the right side of the tax rules.
If you're nowhere near the threshold yet—relax! Focus on growing your business, and keep VAT in mind for the future.