What If My Customer Is Not VAT Registered?

If you run a VAT-registered business, one of the most common scenarios you’ll encounter is selling goods or services to customers who are not VAT registered. These customers may be individuals, small businesses, charities, or startups that operate below the VAT threshold.

This raises an important question: What do you do differently when your customer is not VAT registered? In this guide, we’ll break down how VAT works in this case, your responsibilities, how to invoice, and tips for staying compliant.

Do You Still Charge VAT?

Yes — if you are VAT registered and your product or service is subject to VAT, you must still charge VAT even if your customer is not VAT registered.

Who Are Non-VAT Registered Customers?

• Private individuals (consumers)
• Sole traders or micro-businesses under the VAT threshold
• Charities or non-profits not registered for VAT
• Foreign clients with no VAT registration in their country

In all these cases, you are still obligated to include VAT on your invoice if the sale is local and subject to VAT.

Can the Customer Reclaim VAT?

No — non-VAT registered customers cannot reclaim the VAT you charge. They absorb the VAT as part of the final price. This means:

• Prices will feel more expensive to these clients
• You must be clear whether you quote prices “VAT inclusive”
• Customers may compare your price with competitors who are not VAT registered

How Should You Invoice?

You should issue a VAT invoice that clearly shows:

• Net amount (before VAT)
• VAT amount charged
• Total amount due
• Your VAT registration number

Even if the customer is not VAT registered, your invoice format stays the same — because it’s a tax compliance issue, not a customer preference.

What If You Don’t Charge VAT?

If you are VAT registered and fail to charge VAT to a non-registered customer, you may still be liable to pay it out of your own pocket. The tax authority will assume the VAT was included in your price — even if it wasn’t shown on the invoice.

Should You Adjust Your Prices?

Some businesses try to remain price-competitive by absorbing the VAT cost when dealing with non-VAT registered clients. This might make sense in a B2C (business-to-consumer) market, but you should calculate if this is financially sustainable.

Options:

• Inclusive pricing: e.g., “All prices include VAT” — transparent and customer-friendly
• Exclusive pricing: e.g., $100 + 15% VAT — clearer for B2B, but may confuse individual buyers

Cross-Border Considerations

If you sell to non-VAT registered customers in another country, different rules apply depending on your country’s VAT system:

• Intra-EU sales may be zero-rated with valid VAT numbers
• Exports to non-EU countries are usually zero-rated
• Sales to non-registered customers abroad may still require you to charge VAT (especially digital goods)

Check your local tax authority guidelines or consult a VAT expert for cross-border sales.

Pros and Cons of Selling to Non-VAT Registered Customers

✔ Pros:

• Wider customer base, especially in B2C
• Simple pricing models can increase trust
• You control pricing presentation

✘ Cons:

• Customers cannot reclaim VAT (potential price resistance)
• Added burden of accurate invoicing and reporting
• You are liable for errors in tax collection

Best Practices

• Make your pricing structure (inclusive/exclusive) very clear
• Issue correct invoices even for individuals
• Separate VAT in your accounting to avoid spending tax funds
• Use a good accounting or billing software that supports VAT

Conclusion

Selling to non-VAT registered customers is common, especially in retail and service-based businesses. As long as you are VAT registered, you must charge and report VAT correctly, regardless of your customer’s status.

It’s your responsibility to remain compliant — and part of that involves educating your clients about why VAT is charged and ensuring your invoices and returns reflect those sales accurately.