What VAT is and how it moves through your business
VAT, value added tax, is a tax on sales that is charged at each step of a supply chain and ultimately paid by the final consumer. As a VAT-registered business, you act as a collector. You add VAT to the invoices you send, which is called output VAT, and you pay VAT on many of the things you buy, which is called input VAT. Periodically you file a VAT return and pay the tax office the difference between the two. If you charged €2,000 of VAT on sales and paid €400 of VAT on business costs, you pay over €1,600. The VAT you collect was never your money, which is why it should be kept apart from your income. Every EU country follows this model, but rates, thresholds and filing schedules differ by country.
Do you need to register?
Most EU countries let very small businesses stay outside the VAT system until their turnover passes a national threshold. Below it, you do not charge VAT and cannot reclaim it either. Each country sets its own threshold, and they vary widely; since 2025, EU rules allow countries to set the domestic threshold at up to €85,000, and some set it far lower or have none. Since January 2025 there is also an EU scheme that can let small businesses use the exemption in other member states, subject to an EU-wide turnover limit and a separate registration. Look up your own country's current figure on your tax authority's website rather than relying on a number you read elsewhere, because thresholds change. Rules differ by country, so check with your tax office or accountant.
Voluntary registration: when it makes sense
In many countries you can register for VAT before you reach the threshold. It is worth considering in two situations. If most of your clients are VAT-registered businesses, they can reclaim the VAT you charge, so adding it does not make you more expensive to them, and you gain the ability to reclaim VAT on your own costs, such as equipment, software and coworking fees. If you are about to make a large purchase, such as a new computer setup, being registered may let you recover the VAT on it. Registration also has a cost: regular returns, stricter invoicing rules and more record keeping. If your clients are mainly private individuals, charging VAT makes you more expensive to them, and staying below the threshold is usually the better option while you can.
Charging VAT to clients in your own country
When you are registered and invoice a client in your own country, you normally charge your local VAT rate. Each country has a standard rate and often one or more reduced rates for specific goods and services, so check which applies to your work. As an example, at an illustrative rate of 20 percent, a €2,400 design project is invoiced as €2,400 plus €480 VAT, for a total of €2,880. The €480 is not income; it goes into your VAT account and is paid to the tax office with your next return. Your invoice must meet VAT invoice rules, which typically include your VAT number, the date, a unique sequential number, a description of the work, the net amount, the VAT rate, the VAT amount and the total. Our guide to invoice numbering explains the numbering part.
Business clients in another EU country: the reverse charge
When you provide services to a VAT-registered business in a different EU country, the general rule is that you do not charge your own VAT. Instead, the client accounts for VAT in their country under a mechanism called the reverse charge. Your invoice shows the net amount with no VAT, both your and the client's VAT numbers, and a note that the reverse charge applies. Before invoicing, check that the client's VAT number is valid using the European Commission's VIES service, and keep a record of the check. You will usually also report these sales on a periodic EC sales list. If the client is not VAT-registered, the rules are different. There are exceptions for certain services, such as some relating to property or events, so check the place-of-supply rules for your type of work.
Selling to consumers in other EU countries
Different rules apply when you sell to private individuals in other EU countries, especially digital services and goods shipped across borders. Since July 2021, there is a single EU-wide threshold of €10,000 a year for these cross-border sales to consumers. Below it, you can generally charge your own country's VAT. Once your total of such sales across the EU passes it, you must charge VAT at the rate of the customer's country. To avoid registering in every country, you can use the One Stop Shop, or OSS, which lets you report and pay all of that VAT through one return filed in your home country. This mostly matters for freelancers selling online courses, templates, software or other digital products. Live services, like one-to-one coaching, may follow different rules.
Clients outside the EU
Services to clients outside the EU are often outside the scope of EU VAT, particularly when the client is a business. In that case you invoice without VAT and may need a note on the invoice explaining why. The client may have to deal with tax in their own country, but that is usually their responsibility rather than yours. There are exceptions depending on the type of service and where it is actually used or enjoyed, and the rules for private individuals outside the EU can differ from those for businesses. If you invoice in another currency, remember that your VAT records are still kept in your home currency. Our guide to invoicing in another currency covers the conversion side. Check with your tax office or accountant before your first non-EU invoice.
Reclaiming VAT and filing returns
Being registered means you can usually reclaim the VAT you paid on business purchases, as long as you have a valid VAT invoice or receipt showing the VAT. Common examples are equipment, software subscriptions, office supplies, professional services and coworking. Some costs, such as entertainment or cars, often have restrictions, so check your country's rules. Filing schedules also differ: returns may be monthly, quarterly or annual depending on your country and turnover, with deadlines shortly after each period ends. Keep every sales invoice and purchase receipt that appears on a return. If you need to reduce or cancel an invoice after it is sent, issue a credit note rather than editing the original; see our guide to credit notes. Corrections then flow into the right VAT period.
Track VAT without a second spreadsheet
VAT is much easier when it is recorded at the moment you invoice or log an expense. Kelvo Books includes VAT tracking on both sides: set the VAT rate on each invoice line, add VAT to expenses as you photograph receipts, and see output VAT, input VAT and the balance owed in your tax summary for each quarter. Credit notes adjust VAT correctly, multi-currency invoices are converted to your home currency for reporting, and a CSV or ledger export gives your accountant everything they need for the return. The free plan includes 10 invoices a month, unlimited clients and expenses, and the P&L. Pro at €7 a month adds unlimited invoices, reminders and recurring billing. Start at books.kelvo.app and keep VAT simple.