VAT Registration 2026/27 — £90,000 Threshold & Options

Once your taxable turnover passes £90,000 in any rolling 12-month period, you must register for VAT — even if your profit is tiny. Registration makes you charge 20% VAT on sales (output tax) and reclaim VAT on purchases (input tax), and it brings quarterly digital filing under Making Tax Digital. Below the threshold you can register voluntarily, which helps business-to-business traders but hurts anyone selling to the public. See the VAT arithmetic with the VAT Calculator→.

This guide covers the threshold, compulsory versus voluntary registration, rates, schemes and the obligations that follow registration.

The Registration Thresholds

You must register within 30 days of the end of the month in which your rolling 12-month turnover crosses £90,000, and registration is backdated to the start of that month. The test is cumulative and rolling — ten good months can push you over even if the year ends quietly. The 30-day future test catches one-off large contracts: a single £95,000 job means registering immediately. Deregistration is possible once turnover drops below £88,000, but many businesses stay registered voluntarily because the input VAT they reclaim is worth more than the admin cost. Failing to register on time triggers a penalty based on the VAT owed for the late period, so monitor the rolling figure monthly, not at year end.

Compulsory vs Voluntary Registration

Voluntary registration is a genuine choice, not a default. If you sell mainly to other VAT-registered businesses, being registered is neutral for them (they reclaim your VAT) and lets you reclaim input VAT on your own costs — worth doing even at low turnover. If you sell to the public, registration forces you to either raise prices by 20% or absorb the VAT from your margin, and unregistered competitors undercut you. The £90,000 threshold deliberately keeps small consumer-facing businesses out of the system for exactly this reason. Before registering voluntarily, model both scenarios with the VAT Calculator→.

VAT Rates and What Counts Toward the Threshold

Zero-rated supplies still count toward the threshold — a food business selling £200,000 of groceries is over the limit even though it charges 0%. Exempt supplies do not count and cannot have input VAT reclaimed, which is why charities and schools sit outside the system. The distinction matters for the threshold calculation: your "taxable turnover" is the total of standard, reduced and zero-rated supplies, not your profit and not your exempt income.

Test the turnover on the correct date

The threshold is not a year-end test. Keep a rolling schedule showing the date of each taxable supply, the VAT status of the supply and the amount that belongs in the period. A large invoice may need to be considered with the underlying tax point rather than the date cash reaches the bank. Credit notes, deposits, recurring invoices and supplies made through an online platform should be reconciled to the VAT records instead of being left in a separate sales spreadsheet.

The future-30-day test is different from the rolling-12-month test. If you expect taxable turnover to exceed the threshold in the next 30 days alone, the registration obligation can arise from that expectation. It is not safe to wait for twelve months of actual sales when a signed contract or one-off order makes the future test relevant. Write down the forecast, the evidence available at the time and the date on which the expectation arose. If the contract changes, retain the revised evidence and ask HMRC or a qualified adviser how the registration date should be treated.

Do not include exempt income just because it appears in the same bank account, and do not remove zero-rated sales from the threshold merely because the invoice shows no VAT. Mixed businesses need a supply-by-supply classification. A business that makes both exempt and taxable supplies may also face partial-exemption restrictions on input tax, so the amount shown on purchase invoices is not automatically the amount reclaimable.

Registration date and pricing

Once registration is required, the effective date matters. It determines which supplies need VAT accounting, which invoices need correction and which pre-registration costs may qualify for recovery. Do not add VAT to an old invoice without checking the effective date and the contract price. If a quote was agreed as a VAT-inclusive amount, registering may reduce the net sales value unless the contract permits a VAT adjustment. If the customer is VAT registered, the commercial effect may be smaller because the customer can normally reclaim eligible VAT, but that does not remove your invoicing and record-keeping obligations.

After Registration — Your Obligations

All VAT-registered businesses use Making Tax Digital: records must be digital and returns must go through compatible software — the old HMRC portal route is closed. Late filing and payment attract penalty points that escalate into fixed penalties once you accumulate them. Cash accounting lets you pay VAT only when customers pay you, which suits slow-paying trades; the Flat Rate Scheme charges a fixed percentage of turnover instead of output-minus-input, but since 2024 "limited cost traders" — most service businesses spending under 2% of turnover on goods — are stuck at 16.5%, which usually makes it worse than standard accounting.

MTD does not remove the need for a review before submission. Reconcile the VAT control account to the bank and sales ledger, check that credit notes have been posted, inspect unusual rates and confirm that the return period is correct. Keep evidence for input-tax claims, including valid VAT invoices and a business purpose. A digital record of a transaction is not the same as proof that the input VAT is recoverable. Private use, blocked items, exempt activities and missing invoices can all change the claim.

Create a deadline calendar for the return, payment and any annual-accounting instalments. A return can be filed while the payment still fails, so save the submission receipt and the bank confirmation separately. If a return is wrong, correct it using HMRC’s correction process rather than silently changing a later period. Where a mistake is material or the business has mixed supplies, obtain advice and retain the explanation of the correction with the VAT working papers.

Real Examples

Example 1 — B2B consultant at £100,000: Amira invoices £120,000 including £20,000 of output VAT and reclaims £8,000 of input VAT on software and equipment. She pays £12,000 to HMRC quarterly and her profit is unchanged — VAT is a pass-through for B2B traders, affecting cash flow, not margins.

Example 2 — B2C retailer deciding voluntarily: A jeweller at £60,000 turnover selling to the public can either absorb the VAT (revenue falls to £50,000 after VAT) or raise prices 20% and risk losing price-sensitive customers. The decision usually lands on: do you reclaim more input VAT than you lose to pricing pressure?

Cash Accounting, Annual Accounting and the Flat Rate

Three schemes simplify life for smaller registered businesses. Cash accounting lets you pay VAT only when customers pay you and reclaim only when you pay suppliers — essential for trades with slow payers, and it also defers VAT on bad debts. Annual accounting files one VAT return a year with nine interim payments, cutting admin for low-volume businesses. The Flat Rate Scheme charges a fixed percentage of turnover instead of output-minus-input, with rates from 7.5% for retail to 14.5% for general services — but the 2024 changes put most service businesses into the 16.5% limited cost trader category, which usually makes the scheme worse than standard accounting. All three are optional: a business on standard accounting can switch, provided it meets the eligibility thresholds, and each scheme has its own entry and exit rules. The right choice depends on whether your customers pay quickly and whether your input VAT is material.

Compare a scheme using the same forecast for gross sales, payment timing, input VAT, bad debts and administrative cost. Cash accounting can improve cash flow when customers pay late, but it can delay recovery of input VAT until suppliers are paid. The Flat Rate Scheme may simplify bookkeeping, but a percentage of VAT-inclusive turnover can be higher than the net VAT under standard accounting for a business with substantial eligible purchases. The limited-cost-trader test is a statutory calculation, not a general description of a service business; check the current HMRC conditions and keep the purchase evidence.

Pre-Registration and Deregistration

You can reclaim input VAT on goods still held when you register (up to four years before) and services received (up to six months before), which gives a first-return boost to businesses that bought equipment before crossing the threshold. Deregistration works in reverse: you may deregister if you expect taxable turnover to remain at or below £88,000 over the next 12 months, and VAT on stock and assets held at deregistration may be treated as a supply, creating an output VAT charge on the final return. Registration is not a one-way door — a business that deregisters can re-register later if turnover rises again — but each change has paperwork and potential tax consequences, so the decision is best made with the cash-flow picture in front of you.

Frequently Asked Questions

Check the VAT arithmetic with the VAT Calculator→, then read the Making Tax Digital guide for the filing requirements and the Sole Trader Expenses guide if you are unincorporated.

Official sources

• GOV.UK — Register for VAT
• GOV.UK — Cancel your VAT registration
• GOV.UK — Budget 2025 rates and allowances
• GOV.UK — Making Tax Digital for VAT (VAT Notice 700/22)
• GOV.UK — VAT Flat Rate Scheme
• GOV.UK — Keeping VAT records