VAT registration is the point at which a small business becomes a tax collector for HMRC, and the rules on when it happens are more precise than most people assume. The threshold is £90,000, but it is measured over a rolling twelve months rather than a tax year, there is a second forward-looking test, and the consequences of registering late fall entirely on the business. This guide explains how the threshold works, what crossing it means, when registering voluntarily makes sense and how to leave the system if turnover falls.
What counts as taxable turnover
The threshold applies to VAT-taxable turnover: the total value of sales that would be subject to VAT at the standard, reduced or zero rate if you were registered. Zero-rated sales, such as most food, children's clothing and exports of goods, count towards the threshold even though they carry no VAT. Exempt sales do not: insurance, most financial services, residential letting, education by eligible bodies and some health services. Sales of capital assets, such as a van you have finished with, are excluded. Income outside the scope of VAT, such as grants and genuine donations, is also excluded. Many businesses count the wrong things in both directions.
The backward-looking test
At the end of every month, add up your taxable turnover for that month and the previous eleven. If the total exceeds £90,000, you have crossed the threshold. You must notify HMRC within 30 days of the end of the month in which it happened, and your registration takes effect from the first day of the second month after it. A business whose rolling total passes £90,000 in March must notify by 30 April and is registered from 1 May.
Because the window rolls, a strong month twelve months ago drops out as a strong month today drops in, and the total can cross the line in a month that does not feel unusual. The VAT threshold tracker does the arithmetic from twelve monthly figures.
The forward-looking test
Separately, if at any point you expect your taxable turnover in the next 30 days alone to exceed £90,000, you must register within those 30 days, and registration takes effect from the date you formed the expectation. This catches businesses that win a single large contract. It does not catch gradual growth, which the backward test does.
Crossing late
Businesses that discover they crossed months earlier must register with the correct backdated effective date. From that date they are liable for VAT on all taxable sales, which they may not be able to recover from customers who have already paid. HMRC may also charge a failure-to-notify penalty, which is a percentage of the VAT due from the effective date to the date of notification, reduced substantially where the business comes forward before HMRC finds it. Checking the rolling total every month is cheaper than any of this.
What registration means
From the effective date you must charge VAT on taxable sales, at 20% standard, 5% reduced or 0% zero rate depending on the supply. You must keep digital records and submit returns through Making Tax Digital-compatible software, usually quarterly, with each return and payment due one month and seven days after the quarter end. You can reclaim VAT on business purchases that carry it, including, on the first return, VAT on goods still held that were bought in the previous four years and on services received in the previous six months. Your prices to consumers either rise by the VAT or your margin absorbs it; your prices to VAT-registered business customers are unaffected in practice because they reclaim it.
Voluntary registration
You can register below the threshold, and whether you should depends on who your customers are. If they are mainly VAT-registered businesses, registering lets you reclaim VAT on your own costs at no real cost to customers, and some business customers prefer dealing with registered suppliers. If they are consumers, registration either raises your prices by 20% or cuts your margin by a sixth, and waiting until the threshold compels registration is usually better. Businesses with large start-up costs sometimes register early to recover the VAT and deregister later, which is allowed but attracts attention.
Schemes
At registration you choose a scheme, and the choice can be worth thousands a year. The standard scheme charges VAT on sales and reclaims it on purchases, suiting businesses with meaningful VAT-bearing costs. The flat rate scheme pays HMRC a fixed percentage of gross turnover without reclaiming input VAT, which once favoured low-cost service businesses but since the 16.5% limited-cost-trader rate helps far fewer. Cash accounting lets you account for VAT when invoices are paid rather than issued, helping businesses with slow payers. Annual accounting means one return a year with instalment payments. Our registration service at £79 includes the recommendation based on your figures.
Invoicing while you wait
HMRC usually issues the VAT number within two to four weeks, longer if it selects the application for checks. You are liable for VAT from your effective date but cannot issue a VAT invoice without the number. The practical approach is to increase prices by the VAT amount with a note that a VAT invoice will follow, and to issue proper VAT invoices once the number arrives.
Deregistering
If your taxable turnover will be under £88,000 in the next twelve months, you can apply to deregister. On deregistration you account for VAT on stock and assets still held if the VAT on them would exceed £1,000. Businesses that cease trading or change legal entity, for example incorporating a sole trade, must deregister within 30 days, and the new entity registers in its own right or takes over the registration.
Businesses with no UK establishment
A business with no fixed establishment in the UK that makes taxable supplies here must register from its first sale; the £90,000 threshold does not apply. Online marketplaces account for VAT on some overseas sellers' sales to UK consumers, but not all, and the rules are set out on our e-commerce page.
Keeping on top of it
Monthly bookkeeping that tracks the rolling twelve-month taxable turnover is the simplest protection, and our bookkeeping service reports it each month. When registration is needed, we handle the application, the scheme choice and the first return, and our VAT returns service at £35 a month runs the quarterly cycle thereafter.
A worked example
A joiner's taxable turnover was £6,000 to £7,000 a month through 2025 and rose to £8,500 a month from the summer of 2026. At the end of September 2026 the previous twelve months add up to £88,400; at the end of October, £90,600. The threshold was crossed in October. Notification is due by 30 November and registration takes effect on 1 December. From that date every invoice carries VAT, and the joiner, who works for VAT-registered contractors, has little difficulty passing it on. Had the customers been homeowners, the same registration would have meant either a 20% price rise or a margin cut, and planning for it earlier, perhaps by adjusting prices gradually, would have mattered.
Registering a company versus a sole trader
Registration attaches to the legal entity. A sole trader who incorporates must deregister the sole trade and register the company, or apply to transfer the registration number, which keeps continuity for customers. Turnover of the sole trade counts towards the company's threshold where the business is transferred as a going concern, so incorporation does not reset the clock.
Keeping the number
Once registered, the VAT number appears on every invoice, your website and your business letters. Returns must be filed even for quarters with no sales. Failing to file a nil return still earns a penalty point. Registration is a change in how the business operates, and the businesses that find it easiest are those whose bookkeeping was already digital and monthly before the threshold arrived.
A worked example
A joiner's taxable turnover was £6,000 to £7,000 a month through 2025 and rose to £8,500 a month from the summer of 2026. At the end of September 2026 the previous twelve months add up to £88,400; at the end of October, £90,600. The threshold was crossed in October. Notification is due by 30 November and registration takes effect on 1 December. From that date every invoice carries VAT, and the joiner, who works for VAT-registered contractors, has little difficulty passing it on. Had the customers been homeowners, the same registration would have meant either a 20% price rise or a margin cut, and planning for it earlier, perhaps by adjusting prices gradually, would have mattered.
Registering a company versus a sole trader
Registration attaches to the legal entity. A sole trader who incorporates must deregister the sole trade and register the company, or apply to transfer the registration number, which keeps continuity for customers. Turnover of the sole trade counts towards the company's threshold where the business is transferred as a going concern, so incorporation does not reset the clock.
Keeping the number
Once registered, the VAT number appears on every invoice, your website and your business letters. Returns must be filed even for quarters with no sales. Failing to file a nil return still earns a penalty point. Registration is a change in how the business operates, and the businesses that find it easiest are those whose bookkeeping was already digital and monthly before the threshold arrived.
A worked example
A joiner's taxable turnover was £6,000 to £7,000 a month through 2025 and rose to £8,500 a month from the summer of 2026. At the end of September 2026 the previous twelve months add up to £88,400; at the end of October, £90,600. The threshold was crossed in October. Notification is due by 30 November and registration takes effect on 1 December. From that date every invoice carries VAT, and the joiner, who works for VAT-registered contractors, has little difficulty passing it on. Had the customers been homeowners, the same registration would have meant either a 20% price rise or a margin cut, and planning for it earlier, perhaps by adjusting prices gradually, would have mattered.
Registering a company versus a sole trader
Registration attaches to the legal entity. A sole trader who incorporates must deregister the sole trade and register the company, or apply to transfer the registration number, which keeps continuity for customers. Turnover of the sole trade counts towards the company's threshold where the business is transferred as a going concern, so incorporation does not reset the clock.
Keeping the number
Once registered, the VAT number appears on every invoice, your website and your business letters. Returns must be filed even for quarters with no sales. Failing to file a nil return still earns a penalty point. Registration is a change in how the business operates, and the businesses that find it easiest are those whose bookkeeping was already digital and monthly before the threshold arrived.