Journey
Approaching the VAT threshold
What to do when your turnover is approaching £90,000 and you might need to register for VAT. Helps you monitor your position, understand when registration becomes mandatory, and choose the right VAT scheme for your business.
Is your business approaching the VAT threshold?
When your taxable turnover approaches £90,000, you need to start monitoring closely. VAT registration is mandatory once you exceed this threshold in any rolling 12-month period.
Key facts:
- The threshold is £90,000 (from 1 April 2024)
- It's calculated on a rolling 12-month basis, not the tax year
- Late registration triggers penalties and backdated VAT liability
- You can register voluntarily before reaching the threshold
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Check if you're approaching the threshold
Start by understanding exactly where you stand. VAT registration uses two tests: the historic test (looking back 12 months) and the future test (expecting to exceed £90k in the next 30 days).
Check if you need to register for VAT
Understand the two VAT registration tests and calculate your rolling 12-month taxable turnover.
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Decide: wait for mandatory registration or register voluntarily?
You have two choices when approaching the threshold:
- Wait: Continue trading until you exceed £90,000, then register within 30 days
- Register voluntarily: Register now, even though you're below the threshold
There's no "right" answer - it depends on your business type and customer base.
- Register voluntarily if
- You sell mainly B2B (business customers can reclaim VAT), have significant VAT-able expenses, or want to appear more established
- Wait for mandatory if
- You sell mainly to consumers (they cannot reclaim VAT), have minimal expenses, or your competitors are not VAT-registered
- Registration deadline
- Within 30 days of exceeding £90,000 at any month-end
- Penalty for late registration
- VAT backdated to when you should have registered, plus percentage penalties (0-100% of VAT due)
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Register for VAT
Once you've decided to register (or must register), the process takes about 30 working days. You can register online through HMRC.
- Registration method
- Online via Government Gateway (recommended)
- Processing time
- Allow up to 40 working days before chasing HMRC
- What you'll receive
- VAT registration number, effective date, first return period
- First VAT return
- Due 1 month and 7 days after your first VAT period ends
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Choose the right VAT scheme
Don't just use standard VAT accounting by default. HMRC offers three schemes designed for smaller businesses that can simplify administration and improve cash flow.
VAT schemes for small businesses
Compare Flat Rate Scheme, Cash Accounting, and Annual Accounting to find what suits your business.
- Flat Rate Scheme
- Pay fixed % of turnover (4-14.5% depending on sector, or 16.5% for limited cost traders). Simple but cannot reclaim VAT on most purchases. Join if under £150k turnover.
- Cash Accounting
- Pay VAT when customers pay you, not when you invoice. Good for businesses with payment delays. Join if under £1.35m turnover.
- Annual Accounting
- One VAT return per year instead of four. Make advance payments throughout the year. Join if under £1.35m turnover.
- Standard accounting
- Default method. Calculate VAT on every transaction, reclaim VAT on purchases. More admin but full flexibility.
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Get your systems ready
Before your effective registration date, you need to:
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Choose MTD-compatible software
Making Tax Digital for VAT is mandatory. You must keep digital records and submit returns via compatible software.
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Update your invoices
VAT invoices must show your VAT number, the VAT amount, and the rate applied.
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Decide on pricing
Will you add VAT on top of current prices, or absorb it in your margins? B2B customers expect VAT; consumers feel price increases.
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Tell your customers
Let B2B customers know you're now VAT-registered so they can reclaim VAT. Update price lists if needed.
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Set up record keeping
Keep VAT invoices (sales and purchases), records of VAT-exempt sales, and import/export documentation.
Summary: Your VAT threshold checklist
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Official guidance
Register for VAT (opens in a new tab)
Online registration service
HMRC
Find MTD-compatible software (opens in a new tab)
List of software that works with Making Tax Digital
HMRC
VAT registration thresholds (opens in a new tab)
Current thresholds and calculation rules
HMRC
Check VAT numbers (opens in a new tab)
Verify VAT registration numbers (yours or suppliers)
HMRC
Penalties for failure to notify HMRC (opens in a new tab)
HMRC penalty ranges, including late VAT registration
Publication · HMRC