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.

Running a Business Updated 15 September 2026

5 milestones references 3 guides

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

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.
VAT registration threshold

The current threshold and what counts as taxable turnover:
VAT registration becomes mandatory when your taxable turnover exceeds £90,000 in a rolling 12-month period (as of 1 April 2024). You can also register voluntarily below this threshold.

Mandatory threshold

£90,000 taxable turnover in rolling 12 months

Registration deadline

30 days after exceeding threshold

Voluntary registration

Allowed at any turnover level

Deregistration threshold

£88,000 - can deregister if turnover falls below

Standard rate

20% (most goods and services)

Reduced rate

5% (domestic fuel, children's car seats, etc.)

Zero rate

0% (most food, books, children's clothes, etc.)

What counts as 'taxable turnover':
Includes: Standard-rated, reduced-rated, and zero-rated sales
Excludes: VAT-exempt sales (insurance, finance, education, health), goods sold outside the UK
Calculate over rolling 12-month period - if last 12 months exceed £90,000, you must register
Future test: If you expect to exceed £90,000 in next 30 days alone, register immediately

Making Tax Digital (MTD) for VAT - mandatory for ALL VAT-registered businesses:
You must keep digital VAT records using MTD-compatible software
Submit VAT returns directly from the software via HMRC API
Applies to all VAT-registered businesses regardless of turnover (since April 2022)
Penalties for non-compliance: Points-based penalty system (4 points for quarterly, 5 for monthly, 2 for annual filers trigger penalties). Late filing penalties start from £200 per late submission after reaching penalty point threshold

Should you register voluntarily below £90,000?
Reasons TO register:
Reclaim VAT on business purchases and expenses (especially valuable for high capital expenditure)
Appear more established and professional to B2B customers
Necessary to trade with VAT-registered B2B customers who want VAT invoices
Reasons NOT to register:
Administrative burden of VAT returns, MTD software, and record-keeping
20% price increase if selling to consumers who cannot reclaim VAT
Cash flow impact - you collect VAT from customers and pay it to HMRC before receiving payment if not using Cash Accounting scheme

VAT schemes for small businesses:
Flat Rate Scheme - pay flat percentage (6.5%-14.5% depending on sector) of gross turnover instead of tracking input VAT. If you're a "limited cost trader" (goods costs under 2% of turnover, or under £1,000/year), you must use a higher 16.5% rate instead. Available when joining VAT if turnover under £150,000. You must leave the scheme if turnover exceeds £230,000 (including VAT).
Cash Accounting - pay VAT when customers pay you, not when you invoice. Join if turnover under £1.35 million, leave if exceeds £1.6 million.
Annual Accounting - file one VAT return per year instead of four, make advance payments. Join if turnover under £1.35 million, leave if exceeds £1.6 million.

Penalties for late registration:
You must pay VAT due from when you should have registered, even if you did not charge customers
Late registration penalty: Percentage of VAT due for period of non-registration based on behaviour: Non-deliberate 0-30%, Deliberate 20-70%, Deliberate and concealed 30-100%. Minimum penalty £50
Criminal prosecution possible for deliberate failure to register

Deregistration - if your turnover falls below £88,000 (deregistration threshold), you can choose to deregister. You must deregister if you stop making taxable supplies altogether.

Register for VAT online (opens in a new tab)

Official source - gov.uk/vat-registration-thresholds
Guv’s take

Check your rolling 12-month turnover at the end of each month. If you're within £15,000 of the threshold, monitor more frequently.
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.
Take note

Do not artificially split your business or delay invoicing to stay under the threshold. HMRC considers when services are supplied, not when you invoice. VAT avoidance carries serious penalties.
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.

VAT registration

How to register for VAT, what information you need, and what happens after registration.

Guv’s take

You can reclaim VAT on purchases made up to 4 years before registration (goods still held) and 6 months before registration (services). Keep your pre-registration invoices.
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.

VAT scheme comparison

Quick comparison of your options:

Standard VAT

Pay VAT on invoices issued. Reclaim VAT on purchases in full.

Flat Rate Scheme

Pay fixed % of turnover. Cannot reclaim VAT on most purchases. Turnover max: £150,000.

Cash Accounting

Pay VAT when customers pay you. Helps cash flow. Turnover max: £1.35 million.

Annual Accounting

File one VAT return per year. Make advance payments. Turnover max: £1.35 million.

VAT schemes (opens in a new tab)
Get your systems ready

Before your effective registration date, you need to:

Summary: Your VAT threshold checklist

I know my rolling 12-month taxable turnover I understand the difference between historic and future registration tests I've decided whether to register voluntarily or wait I've researched which VAT scheme suits my business I've identified MTD-compatible accounting software I know when my registration deadline is (if approaching threshold) I've planned how to communicate pricing changes to customers

Approaching the VAT threshold

Is your business approaching the VAT threshold?

Check if you're approaching the threshold

Check if you need to register for VAT

Decide: wait for mandatory registration or register voluntarily?

Register for VAT

VAT registration

Choose the right VAT scheme

VAT schemes for small businesses

Get your systems ready

Summary: Your VAT threshold checklist

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