VAT registration threshold: when you must register

What is the VAT registration threshold for 2026/27?

£90,000 of VAT-taxable turnover in any 12 month period. Turnover means sales, not profit, and VAT-taxable means everything that would carry VAT at 20%, 5% or 0% once you are registered. Exempt income such as insurance commission, most financial services and residential rent is left out. Once registered you stay registered until taxable turnover drops below the £88,000 deregistration threshold and you ask to leave.

What counts towards the threshold?

• Sales that would be standard, reduced or zero rated once you are registered, including zero-rated food and books.
• Goods you hire out or lend, and business goods you take for personal use.
• Certain services you buy from abroad under the reverse charge.
• Not exempt sales, not sales of capital assets such as a van, and not income outside the scope of VAT such as grants.

How does the rolling 12 month test work?

At the end of every month, add up your taxable turnover for that month and the 11 before it. The window moves forward a month at a time, so it has nothing to do with the tax year or your accounting year. Most people who get caught out assumed the clock reset on 6 April; it does not. A plumber invoicing £8,000 a month from April 2026 looks like this:

After 11 months the total is £88,000, just under the line. The 12th month, March 2027, takes the running total to £96,000 and the threshold is crossed. The plumber must tell HMRC within 30 days of the end of March 2027, so by 30 April 2027, and the registration takes effect on 1 May 2027. From that date every invoice carries VAT. If the plumber’s turnover had been £7,500 a month the total would never have reached £90,000 and nothing would be needed.

What is the 30 day forward test?

There is a second trigger. If at any point you expect your taxable turnover in the next 30 days alone to exceed £90,000, for example because you have just signed one large contract, you must register immediately, and registration takes effect from the date you realised, not the end of the month. This catches businesses that go from nothing to a big order overnight. It is rare for a sole trader but common for a new limited company landing a single large customer.

What happens if I register late?

HMRC backdates your registration to the date you should have registered and expects the VAT on every sale since then, whether or not you charged it. If you invoiced £1,000 for a job during that period and cannot go back to the customer, HMRC treats the £1,000 as VAT-inclusive and you owe the VAT inside it. There is a penalty on top, calculated as a percentage of the VAT due and scaled by how late you were. If you are close to the threshold, run the rolling total every month and keep the figures; it takes five minutes.

Should I register voluntarily before I have to?

You can register at any turnover, and it pays when your customers are VAT-registered businesses. They reclaim the VAT you charge, so your price to them is unchanged, and you get to reclaim the VAT on your own costs: tools, a van, software, fuel. It costs you when your customers are households or small unregistered businesses, because a £1,000 job becomes £1,200.00 and they cannot claim the £200.00 back. You either absorb the VAT and earn less, or charge it and become dearer than unregistered rivals. The usual pattern: trades serving the public stay below the line as long as they can; consultants and contractors serving companies often register early.

Which VAT scheme should I choose?

Standard accounting means paying HMRC the VAT on sales minus the VAT on purchases each quarter. The Flat Rate Scheme replaces that with a fixed percentage of your gross turnover, set by sector, with a 1% discount in the first year; it suits businesses with few VAT-able costs, but if your goods cost less than 2% of turnover or £1,000 a year you are a limited cost trader at 16.5%, which usually loses. Cash accounting lets you pay VAT when the customer pays rather than when you invoice, which protects cash flow if customers pay slowly. Annual accounting means one return a year with payments on account. You can combine cash or annual accounting with the flat rate.

What changes on the day I am registered?

• Every taxable invoice shows VAT at the right rate, your VAT number and the net, VAT and gross totals. See what a UK invoice must include.
• Quotes to households should show the VAT-inclusive price prominently.
• You keep digital records and file quarterly through Making Tax Digital software.
• You can reclaim VAT on stock bought in the four years before registration that you still hold, and on services bought in the six months before.

The VAT is not your money. Move it to a separate account as each invoice is paid, and the quarterly bill never hurts. Your self assessment profit is worked out net of VAT once you are registered, so the registration does not change your income tax directly. If registration is the point at which you are also thinking about structure, read when to register a limited company; the VAT threshold applies in the same way to both.