YF AccountingLast updated: 4 September 2026
8 min read
You must register for VAT when your taxable turnover for the last 12 months (checked at the end of every month, on a rolling basis) goes over £90,000, or when you expect to cross £90,000 in the next 30 days alone. You then have 30 days to apply, and once registered you charge VAT on your sales and reclaim it on most purchases. If your turnover has been creeping up nicely, this post explains exactly how the tests work, what changes on day one, and the choices worth making before you cross the line rather than after.
It is written for UK sole traders, partnerships and limited companies who are either close to the VAT registration threshold now or expect to be within the next year or two.
What is the VAT registration threshold in 2026/27?
For the 2026/27 tax year the VAT registration threshold is £90,000 of taxable turnover, and the deregistration threshold sits a touch lower at £88,000. Those figures have been in place since 1 April 2024 and are confirmed on gov.uk.
The word “taxable” is doing a lot of heavy lifting. Your taxable turnover is everything you sell that is not VAT exempt or out of scope: standard rated, zero rated and reduced rated sales, goods you used personally from the business, goods you bartered or gave away, and certain reverse-charge services bought from overseas. It does not include exempt income such as most insurance, certain education services, and rent on most residential property. If you only ever sell exempt items, you do not need to register at all.
How does the rolling 12-month test work?
This is the bit that catches most people out, so it is worth slowing down on. The test is not your accounting year or the tax year. It is a rolling window. At the end of every month you look back over the previous twelve months and add up your taxable turnover. The moment that figure goes over £90,000, you have 30 days from the end of that month to apply for registration, and your effective date of registration is the first day of the second month after you crossed the line.
A worked example: say your rolling twelve months to 15 July hit £100,000 for the first time, meaning the twelve months to 31 July are over the threshold. You must register by 30 August. Your effective date of registration is 1 September, and from that date you charge VAT on what you sell.
What is the 30-day forward test?
The second test looks forward. If at any point you realise your taxable turnover will exceed £90,000 in the next 30 days alone (because you have signed a single large contract, for instance), you must register by the end of that 30-day period. Crucially, your effective date of registration is the date you realised, not the date the money arrives.
That trips up consultants, contractors and tradespeople who win a chunky one-off job and assume they can defer registration until they invoice. They cannot.
What changes the day you become VAT registered?
From your effective date of registration, three things happen:
- You charge VAT on your sales: for most businesses, 20% added to the price. The silver lining is you also reclaim VAT on most business purchases.
- You file VAT returns through Making Tax Digital compatible software, quarterly for most businesses, due one month and seven days after each quarter end.
- You can reclaim pre-registration VAT on goods bought in the four years before registration that you still hold, and services bought in the six months before. Done properly, this puts a meaningful chunk of cash back into the business in your first return.
How does VAT registration affect your prices?
Here is the bit that keeps owner-managed businesses awake at night. If most of your customers are VAT-registered businesses, registering is largely a paperwork exercise: your prices stay the same, your customers reclaim the VAT, and life goes on.
If most of your customers are members of the public, or small businesses below the threshold, the picture is very different. Your prices effectively rise by 20% overnight unless you absorb the cost. A hairdresser charging £30 for a cut now has to charge £36, or take a £5 hit on margin to keep the headline price. That is a conversation to have before you cross the line. Renegotiating with customers after you have already raised prices is much harder than warning them in advance.
Can you legally stay below the VAT threshold?
Some businesses deliberately trade just below £90,000 for years, because the 20% price jump for consumer customers is not worth a small uplift in revenue. That is a perfectly valid commercial choice: managing your capacity, timing invoices across month ends, or taking a holiday when you would otherwise tip over. It has to be a choice rather than an accident, though: the rolling check still needs doing every month. And if you are already registered but your turnover falls below £88,000, you can apply to deregister.
What you must not do is artificially split the business, for example running “two” businesses from the same premises, with the same staff and customers, one in your name and one in your spouse’s, purely to keep each below £90,000. HMRC calls this disaggregation, and where it finds it, it can direct that the businesses be treated as one, registering you compulsorily and going back over past turnover. Genuine, independently run businesses are fine; cosmetic splits are not.
One more escape route: if you exceeded £90,000 only because of a genuine one-off spike you do not expect to repeat, you can apply to HMRC for an exception from registration. Worth a try where it genuinely applies, but do not bank on it.
Which VAT scheme should you choose once registered?
There are several schemes designed to simplify life once you are in:
| Scheme | How it works | Best for |
|---|---|---|
| Standard VAT accounting | Charge output VAT, reclaim input VAT, file quarterly | Most businesses with regular costs |
| Flat Rate Scheme | Pay a fixed percentage of gross sales (join up to £150,000 turnover; leave at £230,000). Limited cost traders pay 16.5% | Service businesses with low costs, but run the numbers first |
| Cash Accounting | Pay VAT only when customers actually pay you (join up to £1.35m) | Businesses with slow payers |
| Annual Accounting | One return a year with payments on account (join up to £1.35m) | Those who want less filing admin |
The right choice depends on your customer base, your cost profile, and how much admin you will tolerate. Our free VAT guide for small businesses goes through each scheme in more detail.
Should you register for VAT voluntarily?
You are allowed to register before you have to. It can make sense if you sell mainly to other VAT-registered businesses, because you reclaim VAT on your own costs without putting prices up for your customers, and it can help your credibility on larger contracts. The flip side is the extra admin and a slight cash-flow drag from holding VAT before paying it over to HMRC.
What are the most common mistakes?
A few patterns crop up year after year. The first is leaving the rolling twelve-month check until the end of the financial year. By then you may already be three or four months late, and HMRC can come after you for the VAT you should have charged, plus penalties. The second is treating gross sales and taxable turnover as the same thing; they often are, but not if you sell a mix of exempt and standard rated work. The third is drifting over the threshold by accident rather than by decision. The fourth is doing nothing about pricing or contracts until registration is already in place.
What should you do this week if you are getting close?
Pull together the last twelve months of taxable sales and check the figure. Then forecast the next six months as best you can. If you can see £90,000 approaching within the next year, start planning now: pricing, scheme selection, MTD-compatible software, and a word with whoever does your bookkeeping so the monthly rolling check actually happens.
Frequently asked questions
Is the £90,000 VAT threshold based on profit or turnover?
Turnover, specifically taxable turnover, which is your total sales of non-exempt goods and services before any costs are deducted. Profit is irrelevant. A business turning over £95,000 with £20,000 of profit must register; a business turning over £85,000 with £70,000 of profit need not.
What happens if I register for VAT late?
HMRC treats you as registered from the date you should have been, so you owe the VAT on everything you sold from that date, whether or not you charged it to customers, plus a late registration penalty based on how late you are and interest. The longer it runs, the worse it gets, which is why the monthly rolling check matters.
Can I split my business to stay under the VAT threshold?
Not artificially. Running one business as two (same premises, same customers, split on paper only) is called disaggregation, and HMRC can direct that the parts be treated as a single business for VAT. Genuinely separate businesses with their own records, customers and management are a different matter, but the bar is higher than most people think.
Does zero-rated income count towards the threshold?
Yes. Zero-rated sales are taxable at 0%, so they count in full towards the £90,000 test, a point that surprises bakers, booksellers, exporters and childrenswear sellers. Exempt income (most insurance, certain education, most residential rent) does not count. The distinction between zero-rated and exempt genuinely matters here.
Can I deregister if my turnover falls?
Yes. If you can show HMRC your taxable turnover for the next twelve months will be below £88,000, you can apply to deregister. Be aware you may have to account for VAT on stock and assets you still hold if the VAT on them exceeds £1,000, and think carefully if you regularly bounce around the threshold, because flip-flopping is worse than staying in.
How long does VAT registration take?
Most online applications are processed within about a month, though some take longer if HMRC asks questions. You must charge VAT from your effective date of registration even if your VAT number has not arrived. The usual workaround is to invoice with prices adjusted for VAT and reissue proper VAT invoices once the number comes through.
Need a hand with VAT registration?
Threshold monitoring, registration, scheme selection and quarterly returns are all part of our fixed-fee service: sole traders from £35 a month, limited companies from £50 a month, no hourly billing. A short call now can save a much longer one with HMRC later.
Book a free, no-obligation call or ring 0161 531 0959 and we will check your position properly.
This article is general information, not personal tax advice. Figures correct at 4 September 2026. Always check the latest position on gov.uk or speak to a qualified adviser before you act.
Founder of YF Accounting, a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
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