Understanding VAT for small businesses in 2025

Value Added Tax — VAT in Europe, GST in Canada and Australia — is one of the most misunderstood obligations for small business owners and freelancers. Many overpay, some underpay by accident, and most spend more time thinking about it than they need to.

This guide covers the essentials: when you need to register, how to handle VAT on invoices, and how to stay compliant without hiring a full-time accountant.

What is VAT and who needs to collect it?

VAT is a consumption tax added to the price of goods and services at each stage of the supply chain. As a business, you collect it from your customers and remit it to the government — minus the VAT you paid to your own suppliers (input tax credit).

You generally need to register for VAT once your revenue exceeds a threshold set by your country. Below that threshold, registration is usually optional.

VAT registration thresholds in 2025

How VAT works on your invoices

Once registered, every invoice you send to a customer must show:

• Your VAT registration number
• The net amount (excluding VAT)
• The VAT rate applied
• The VAT amount
• The gross total (including VAT)

CURA's invoice generator handles all of this automatically. You enter the net amount and select the applicable rate — the rest is calculated and formatted correctly.

Input tax: reclaiming VAT you paid

One of the benefits of being VAT-registered is that you can reclaim the VAT you paid on business expenses — software subscriptions, equipment, professional services, and more.

To do this, you need a valid VAT invoice from your supplier. This is why capturing and organizing receipts matters: no valid receipt = no VAT reclaim.

What you can typically reclaim

• Software and SaaS tools used for your business
• Professional services (accounting, legal, consulting)
• Office equipment and supplies
• Business travel and accommodation
• Marketing and advertising expenses

Quarterly VAT filing: what to expect

Most countries require quarterly VAT returns. The process is straightforward once your records are in order:

• Total all VAT collected from customers (output tax)
• Total all VAT paid on business expenses (input tax)
• Pay the difference to the tax authority — or claim a refund if input exceeds output

With CURA, you can export a categorized CSV of all your transactions for the quarter, with VAT amounts clearly separated, ready to hand to your accountant or enter directly into your tax portal.

Common VAT mistakes to avoid

• Forgetting to register once you cross the threshold (penalties apply retroactively)
• Charging VAT before you are registered
• Missing filing deadlines — late penalties escalate quickly
• Failing to keep valid VAT invoices for expenses you want to reclaim
• Applying the wrong VAT rate (reduced rates apply to some goods and services)