You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period, or if you expect it to exceed £90,000 in the next 30 days alone. The threshold is unchanged for 2026/27.
Each test has a different deadline. Understanding which applies gives you time to prepare and avoids having to pay VAT from your own margin.
Here, we explain the two tests, when registering early can benefit your business and what to do if you have already passed the threshold.
What counts towards the £90,000 threshold?
The threshold is measured on sales, rather than profit. You do not deduct wages, materials, rent or other costs.
| Counts towards the threshold | Does not count |
|---|---|
| Standard-rated sales at 20%. | Exempt sales, such as most insurance, finance, education and residential rents. |
| Reduced-rate sales at 5%. | Sales outside the scope of UK VAT. |
| Zero-rated sales, such as most food, children’s clothing and books. | Sales of business capital assets, such as a used van or old equipment. |
| Services bought from overseas suppliers that fall under the reverse charge, such as some software, consultancy and advertising. |
Two areas are easy to overlook.
First, zero-rated sales count in full, even though no VAT is charged.
Second, reverse-charge services bought from abroad count as if you had sold them yourself. A business with modest UK sales but substantial overseas software or advertising bills can therefore cross the threshold without realising.
We include both when checking your turnover.
Test 1: the rolling 12-month test
At the end of each month, add up your taxable turnover for that month and the previous 11 months. If you have traded for less than a year, include everything since you started.
The period moves forward each month. It does not reset at the beginning of the tax year or your financial year.
If the total exceeds £90,000:
- Tell HMRC within 30 days of the end of that month.
- Charge VAT from the first day of the second month after the month you exceeded the threshold.
For example, if your 12-month total exceeds £90,000 at the end of July, you must register by 30 August and charge VAT on every taxable sale from 1 September.
If your turnover exceeds £75,000, we recommend checking the figure monthly. Our bookkeeping clients receive this check as standard, helping them prepare before the deadline arrives.
Test 2: the next 30 days test
This is a separate, stricter test.
If you expect taxable turnover in the next 30 days alone to exceed £90,000, you must register straight away:
- Charge VAT from the day you knew, which is the start of that 30-day period.
- Tell HMRC by the end of the period.
For example, on 1 May you agree a £100,000 contract to be delivered and paid for within 30 days. You must charge VAT from 1 May and register by 30 May.
That contract should carry VAT, so agree the price with VAT added from the outset.
This test concerns a single large job or order. It is not triggered by an ordinary month that takes your rolling 12-month total above £90,000, which falls under Test 1.
If you are about to agree a contract worth more than £90,000, speak to us before settling the price.
What if a one-off order takes you over the threshold?
If you cross £90,000 under Test 1 because of a one-off, such as an unusually large order, you can ask HMRC for an exception from registration.
You must show that taxable turnover for the next 12 months will be no more than £88,000, the deregistration threshold.
There are three points to remember:
- You must still apply within the normal 30-day deadline.
- The exception is not available where you cross the threshold under Test 2.
- If HMRC refuses, registration applies from the date you should have registered, and VAT is due on sales from then.
We prepare these applications with the turnover forecast HMRC needs. If the increase reflects ongoing growth, registering is usually the better course.
Should you register before you have to?
Any business making taxable sales can register voluntarily below £90,000. Whether this benefits you depends mainly on your customers.
| Your business | Voluntary registration usually… | Why |
|---|---|---|
| Sells mostly to VAT-registered businesses. | Pays off. | Customers reclaim the VAT you charge, so it costs them nothing, while you reclaim VAT on your costs. |
| Sells zero-rated goods or has high start-up costs. | Pays off. | You charge little or no VAT but reclaim it on purchases, resulting in repayments from HMRC. |
| Sells mostly to the public. | Costs you. | You either increase prices by 20% or absorb the VAT, losing one-sixth of each VAT-inclusive sale. |
| Sells mostly to charities, schools or other non-registered bodies. | Costs you. | They cannot reclaim the VAT, so it becomes a real price increase for them. |
Registration also brings quarterly returns and digital record-keeping.
Not all VAT is recoverable. VAT on client entertaining and most car purchases cannot be reclaimed.
We compare your actual sales and costs so you can see whether voluntary registration would leave your business better off.
Reclaiming VAT paid before registration
Once registered, you can reclaim VAT on earlier purchases within these limits:
- Goods: bought up to four years before registration, provided you still hold them or used them to make goods you still hold. This covers stock, equipment, tools and vehicles other than cars.
- Services: bought up to six months before registration, such as professional fees, advertising or subcontractors.
Purchases must be for the business being registered, and you need a valid VAT invoice for each.
Keep every purchase invoice from the outset, even before registration is on your radar. We include the pre-registration claim in your first VAT return.
What happens once you register?
Invoicing while waiting for your VAT number
You must account for VAT from your registration date, even if your number has not arrived.
During the wait, increase your prices to include VAT but do not show VAT separately on invoices. Once your number arrives, send customers proper VAT invoices for those sales within 30 days.
Making Tax Digital
Every VAT-registered business must keep digital records and submit returns through Making Tax Digital-compatible software.
We set this up as part of registration using bookkeeping software.
Choosing a VAT scheme
Three HMRC schemes can make VAT simpler or cheaper.
| Scheme | Taxable turnover limit for joining | Best suited to |
|---|---|---|
| Flat Rate Scheme | £150,000, excluding VAT. | Service businesses with few purchases. You pay a fixed percentage of turnover, with a 1% reduction in your first year. |
| Cash Accounting | £1.35 million. | Businesses offering credit. You pay VAT when customers pay, rather than when you invoice. |
| Annual Accounting | £1.35 million. | Businesses wanting one return a year, with fixed instalments throughout the year. |
The Flat Rate Scheme does not suit everyone. Businesses spending little on goods pay 16.5%, which often costs more than the standard method.
We compare the options using your figures before you apply.
What if you have registered late?
VAT is due on every taxable sale from the date you should have registered, whether or not you charged it.
If you did not add VAT, HMRC treats your prices as VAT-inclusive, meaning one-sixth of those sales is owed.
For example, suppose you should have registered six months ago and have since made £60,000 of standard-rated sales without charging VAT. HMRC will treat £10,000 as VAT owed. This comes from your margin, less any VAT recoverable on costs for the same period.
HMRC also charges a late registration penalty of up to 30% of the VAT owed for a careless failure, with higher penalties where the failure was deliberate. Interest is charged too.
The penalty can be reduced to nil if you tell HMRC before it finds out and register within 12 months of the original deadline.
As soon as you suspect you have exceeded the threshold, take action. We will establish the correct registration date, calculate what is owed and make the disclosure to HMRC on your behalf to keep any penalty as low as possible.
Situations where different rules apply
Some businesses need to consider additional registration rules:
- Overseas businesses selling in the UK: there is no threshold, so registration is required from the first taxable UK sale.
- Buying a VAT-registered business as a going concern: the previous owner’s turnover counts towards your threshold, and registration may be needed from the purchase date.
- Mainly zero-rated businesses: you can apply for exemption from registration because you would usually be reclaiming VAT rather than paying it.
- Northern Ireland businesses trading goods with the EU: additional rules apply.
If any of these situations affects you, we will confirm your position before your first sale.
Plan your next steps with confidence
VAT registration is easier to manage when you know what to monitor and have time to prepare.
SMH Group can help you review taxable turnover, understand deadlines and consider the impact on your prices and cash flow. Our VAT support can also help with ongoing requirements.
Get in touch with SMH Group to discuss the next steps for your business.
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