How VAT, GST, and sales tax actually work
VAT (Value Added Tax), GST (Goods and Services Tax), and sales tax are all consumption taxes — paid by the end customer, collected by the seller, remitted to the tax authority. The mechanics differ subtly. VAT and GST are typically charged at every step of the supply chain with input credits at each stage; sales tax is charged only at the final sale to the consumer.
For a freelancer or small business, what matters in practice is: (1) Is the work you're invoicing taxable in your jurisdiction? (2) Are you registered to collect tax? (3) What rate applies to the work being invoiced? The calculator above answers (3) for the major economies. (1) and (2) you have to check with your local tax authority — registration thresholds vary widely.
- VAT (EU, UK): charged at every step of the supply chain. Businesses recover VAT they paid on inputs.
- GST (Canada, Australia, NZ, India, Singapore): similar to VAT in most cases. Some provinces add a separate provincial tax (PST/QST/HST).
- Sales tax (US): charged only at final sale. State-by-state rates; many local additions on top.
- Consumption Tax (Japan, China): similar to VAT. Japan calls it "shōhi-zei"; China calls it "VAT".
When you must register to collect tax
Most jurisdictions only require tax collection above an annual revenue threshold. Below the threshold, you typically can choose whether to register voluntarily — useful if you mostly sell to other registered businesses (they reclaim the tax you charge), problematic if you sell to consumers (your prices look ~20% higher than competitors).
For freelancers, the key thresholds: UK VAT £90,000/year. EU VAT — varies by country, typically €30,000-€100,000 for resident sellers, €10,000 for cross-border B2C sales (the EU's One-Stop-Shop / OSS scheme). Australia GST AUD $75,000/year. US sales tax — economic nexus rules, typically $100,000 in revenue or 200 transactions per state.
- UK VAT: mandatory above £90,000 annual revenue (2026 threshold). Voluntary registration available below.
- EU VAT (resident): varies by country — €30k-€100k typical. OSS for cross-border B2C above €10,000.
- EU VAT (non-EU seller): must register from first sale to EU consumer (no threshold) via OSS.
- Australia GST: mandatory above AUD $75,000 annual revenue. Or AUD $150,000 for non-profits.
- US sales tax: state-by-state. Most states use $100,000 or 200 transactions as the economic nexus threshold.
- India GST: mandatory above ₹40 lakhs (₹2M) for goods, ₹20 lakhs (₹1M) for services.
What to put on the invoice
If you're collecting tax, your invoice has to show specific information to be legally compliant. Most jurisdictions require: (1) the tax rate applied, (2) the tax amount in absolute terms, (3) your tax registration number (VAT number / GSTIN / ABN), and (4) the customer's tax registration number for B2B sales.
In the EU, an invoice missing a valid VAT number where one is required can disqualify the customer from reclaiming the tax — meaning they will refuse to pay the gross amount. Always include both numbers on B2B invoices, even when not strictly required.
- Show the rate: e.g. "VAT 20%" or "GST 10%" — explicit, not just the total.
- Show the amount: separate line: "VAT: £240.00".
- Show your tax #: VAT number (UK/EU), ABN (AU), GSTIN (IN), GST number (CA/NZ).
- Show client's tax # (B2B): required for input credit recovery in EU/UK/AU.
- Bilingual when needed: invoices in EU cross-border sales should include English + local language.
Reverse charge — the EU B2B special case
When you sell B2B services across EU borders, the reverse charge mechanism shifts the VAT obligation to the buyer. You issue the invoice without VAT but with the note 'Reverse charge — VAT to be accounted for by the recipient.' The buyer self-assesses VAT in their jurisdiction.
This applies to most cross-border B2B services in the EU and to non-EU sellers selling B2B services into the EU. It does NOT apply to B2C sales (where you must charge the customer's country VAT via OSS) or to physical goods.
- Eligible: B2B services across EU borders. Both parties registered for VAT.
- Required note: "Reverse charge — VAT to be accounted for by the recipient" (or local language equivalent).
- Validate the buyer's VAT #: use VIES (https://ec.europa.eu/taxation_customs/vies/) before invoicing.
- Not applicable: B2C sales (use OSS), physical goods (use distance selling rules), domestic sales.
Common mistakes that cost you money or get you fined
The five most common tax mistakes on freelancer/SMB invoices: charging tax in the wrong jurisdiction, using an outdated rate, omitting the registration number, mixing reverse-charge with standard sales, and not validating the buyer's VAT number for cross-border B2B.
The most expensive of these is omitting your registration number — without it, your customer cannot reclaim the tax you charged, and they will either refuse to pay it or charge it back. Always double-check your invoice templates after any business change (relocation, new tax registration, etc).
- Charging US sales tax outside your nexus states: a tempting mistake; pay attention to economic nexus.
- Using last year's rate: e.g. UK reduced VAT temporarily during COVID; many invoices still showed 5% in 2024.
- Mixing reverse-charge with standard: each line on the invoice can have a different tax treatment — be explicit per line.
- Skipping VIES validation: tax authorities will deny zero-rated treatment if buyer VAT # is wrong.
- Charging VAT to a non-EU buyer: most B2B exports outside the EU are zero-rated. Don't charge VAT then claim it back.