We need to talk about the VAT threshold

In March 2024 the UK government announced it was moving the VAT turnover threshold from £85,000 to £90,000. A similar move had been made by the Irish government already which came into effect from 1^st January 2024 – shifting the threshold that was originally €37,500 turnover for those selling services, to €40,000.

These numbers might mean nothing to you. But as a small, service-based business owner, or someone aspiring to be one and operating in these countries, you should care.

I remember vividly when I started my career in classical music management over a decade ago paying freelance musicians and observing which ones were able and willing to earn more than the £85k threshold. They were often the leaders of the orchestra or percussion players adding on a lot of extra costs to their fees for providing all their instruments, and it was always that extra bit of paperwork to get their payments sorted.

I learned that while for some musicians the threshold was very far away from their earning reality, for some musicians they actively tracked their income and as they approached the £85k income mark they turned down work and stopped playing until the new financial year kicked in. They did this specifically to avoid being VAT registered.

The whole concept always felt like a strange enigma to me in my early 20s, watching ‘adults’ navigating their finances and make this decision about VAT registration. But once I became self-employed, I was suddenly in a position to face this decision myself.  

And what I discovered is while yes, there are some practical things to consider around what you earn – something which it’s great to get advice on from an accountant or financial advisor – decisions about whether to register for VAT are largely self-belief decisions. And not in fact financial or practical ones.

Let me explain.

Why would you avoid becoming VAT registered?

When you work for yourself, you are told your income potential is, in theory, limitless. Not governed by a company policy, corporate pay structure or your end-of-year review, you can charge what you damn well want and work as much or as little as you choose.

However. The reality is that most health and wellness professionals don’t live that dream of unlimited income. That they often find it impossible to get off the earning blocks at all, stuck in the hobby domain unable to make anything more than pocket money from their qualification.

Many others somehow plateau at a less than satisfactory £1-3k a month which leaves them struggling to enjoy a comfortable living – something I’ve discussed in another blog, which I also recorded as a podcast episode.

And then there’s the next tier of professionals upwards. Who are doing well. Let’s say they’ve got off the earning starting blocks. And that their income is adding up – in Ireland they’re getting to that €30k+ a year and in the UK £70k+.

It doesn’t feel easy necessarily, but it’s ticking over, and the VAT threshold isn’t completely out of reach. It’s starting to appear on the horizon for them as something to consider.  

What are the disadvantages of being VAT registered?

When they Google “why would you avoid being VAT registered?” the answer comes back: “Administrative burden. As a VAT-registered business, there are VAT rules and record keeping requirements you’ll need to comply with.”

And yes of course that’s true. Which is why it’s very easy to say “oh well I’m not going to register for VAT because it’s a right old faff and I’d have to pay an accountant more money and invest in more accounting software and it’s not really worth it.”

And someone listening might smile and nod and agree yeah, what a load of unnecessary paperwork, you’re right. Just stick to earning less than that threshold.

You’re doing well. Money’s coming in. Those figures of income are decent, a lot of people would kill for that. You should be grateful. Don’t rock the boat. Don’t make changes.

But really, the question isn’t:

• Do you want to earn more than £90,000 if you pay tax in the UK, or €40,000 if you pay tax in Ireland and tackle the administrative (and therefore financial) burden that comes with it?

It’s actually:

• Do you believe you can earn more than £90,000 / €40,000 – considerably more so to make it worth the administrative (and therefore financial) burden that comes with it?

I once attended a wellness retreat in Ireland and sat at dinner next to a woman who owned a dog grooming business.

She told me it was successful – that she had so much demand for what she did that she had to turn clients away that wanted her dog grooming services. That there was an opportunity for her to expand her premises and that she had enough of a waitlist to hire another member of staff to help her.

But she didn’t.

Why?

She said it was because of the VAT threshold.

“It’s too much hassle to move into that bracket and I’d have to charge my customers more, so I’ll just stick to what I’m doing” she said.

I was so shocked. And disappointed for her. That the VAT threshold – and it’s low in Ireland at €40k, not exactly enough to be living in any huge sense of abundance given the cost of living right now – was preventing her expanding her business. Something that clearly seemed available to her given all the signs of potential growth.

But when I thought about it later that evening after we’d parted ways, I couldn’t help but conclude that the VAT threshold was just an excuse. A good one that has a lot of truth to it and on the surface, makes a lot of sense. Paperwork. Extra expense. New accounting software. Big change.

But I think the truth is the belief for some people just isn’t there. That the lady with her dog grooming business and the many, many other solopreneurs out there earning slightly below the threshold just don’t believe they can earn more than enough to make VAT registration not just viable but a total no-brainer to surge on past as their income continues to expand to a plentiful level.  That it’s scary to consider what it might take to be that sort of business owner.

Why is that?

Why would a whole bracket of capable, seemingly successful business owners with potential, cap themselves?

What is the belief they are holding that stops them stepping into registration?

Perhaps they’re something like:

• I believe people in my profession don’t earn €40k+ (£90k+ in the UK)
• I believe I will be judged negatively if I become VAT registered
• I believe it will be complicated to handle VAT, I’m scared I’ll get landed with a huge bill if I do it wrong
• I believe I will fail – I won’t be able to sustain a consistent income above the threshold and it will be embarrassing (and complicated) to have to unregister
• I believe I will have to work 10x as hard to consistently earn over the threshold and I’m already exhausted and burned out, so better to stay under it

All of these are protective beliefs. Protecting the business owner from stretching, from trying.

A protective belief that stops them from confidently stepping into the identity of someone that can and does earn comfortably more than the threshold and can sustain the (slight) added burden that comes with it with ease.

Do you charge the VAT on to your customers, or take the cost on yourself?

Another huge part of deciding to become VAT registered is how it affects your pricing and customers. Which again, is less a pricing guru decision and more a self-belief issue.

Let’s say you do make the decision to become VAT registered i.e. aim to earn over £90k or €40k respectively.

The next decision is this:

Do you add the VAT on to your service prices – 20% in the UK and 23% in Ireland – and hit your customers with that increase?

Or do you take the hit yourself, and give up 20/23% of your income to the tax man?

There are lots of practical things to look at here but honestly, when it comes down to it, I think this boils down to how you feel about yourself and your worth. And your belief or fear of what people will think of you and what they are willing to pay for your services.

I think many service providers, particularly in health and wellness, feel apologetic for charging already, before a VAT conversation even enters the frame. They cringe talking about money and sending invoices and hate pricing what they do already.

The fact that they might have the nerve to charge VAT on top of their prices to their customers or even just contemplating charging it when they’ve only just mastered basic VAT-free fees feels horrendous.  

Alternatively, the idea that you’ve just about achieved some sort of stable and meaningful income and then, if you choose to keep your prices the same and pay the VAT yourself, that you’ll lose 20% of your earnings overnight, seems total madness!

Part of this worry about VAT registration I think is the ‘notions’ – as we call it in Ireland. Because if your prices clearly state they include VAT or that you charge it in addition to your fees, it’s basically like broadcasting to the world:

“I EARN MORE THAN €40k / £90k A YEAR DOING THIS”

And wow, does that bring up discomfort for people.

We hate talking about money and what we earn at the best of times.

The idea of making it publicly clear you have surpassed a particular financial threshold means you are opening yourself up to judgement, to other people’s opinions of what you ‘should’ and ‘shouldn’t be earning doing a job like yours. And that is something that protective part of our brain will always work hard to avoid.

A lawyer? Well yeah obviously they’ll charge VAT.

Your plumber or electrician? Pretty standard these days, they’re earning a fortune those guys, right?!

But a nutritionist? A yoga teacher? A health coach?! Which one of these professionals would have the audacity to earn such an amount from helping people feel better in their body?!

So of course staying below the VAT threshold makes sense. It makes total sense to the inner protector part, the voice that shouts “no-one will pay that! What will people think?! I’ll be seen like a money-grabbing sleazebag! There’s a way to avoid that rejection – just don’t go there!”

We can gloss over it and give it a seemingly logical explanation by saying we won’t register for VAT because it’s all down to paperwork and expense. Or because we’re good, kind, nice people and we wouldn’t want our poor customers to have to pay more money when they’re already strapped (a mindset issue for another day!).

But really avoiding VAT registration because you’re not willing to put your prices up or allow others to see what earning bracket you are in, is a self-belief issue. Where adding your VAT onto your prices is a loud declaration of you backing yourself and your worth. Proudly stating through your numbers:

I am here. I earn good money doing what I do because I am good at it. I am well compensated for the incredible help and support I offer my clients.

We need to talk about this VAT issue.

It’s something that is holding back growth and earning potential, particularly in Ireland given it’s so low but still the same in the UK and I have no doubt in other countries too. I have no idea what the threshold is elsewhere, please let me know what it’s like in your country and how it affects your belief and income!

Yes there’s bureaucracy and cost at stake.

But I think largely it’s because of solopreneur self-belief.

I don’t expect I’ll ever be in a position of influence to change the threshold at a government level in the UK or Ireland, which I do believe would be helpful (and others do too).

But what I can do as a self-belief coach is work with you to cultivate the self-belief that you can earn plenty to make VAT registration just a small drop on your journey to a great income. Find out more about working with me.

I’d love to know what you think. Are you reaching the VAT turnover threshold in your country? Does it help or hinder you in your belief in earning more? Drop me a DM on Instagram and we can chat more.