VAT registration sneaks up on a lot of businesses. One quiet quarter you're well under the threshold; one good run of months later and you've crossed it without realising. The penalties for being late aren't huge, but the back-VAT can be — so it pays to know exactly where you stand.
The current threshold
The UK VAT registration threshold is £90,000 of taxable turnover, raised from £85,000 in April 2024. The deregistration threshold is £88,000.
'Taxable turnover' means the total of everything you sell that isn't VAT-exempt or outside the scope of VAT. Sales to overseas customers, zero-rated sales (like most food) and reduced-rated sales (like domestic energy) all count towards the threshold.
The two ways you can be required to register
Most businesses trip the historic test first. Check your rolling 12-month turnover at the end of every month if you're getting close — many accounting packages will do this automatically.
- The historic test — your taxable turnover for the last 12 months (a rolling figure, not the tax year) exceeds £90,000. You must register within 30 days of the end of the month you went over.
- The future test — you reasonably expect your taxable turnover in the next 30 days alone to exceed £90,000 (e.g. you've just won a large one-off contract). You must register by the end of that 30-day period.
What happens once you register
- You charge VAT (usually 20%) on your taxable sales.
- You can reclaim VAT on most business purchases.
- You file a VAT return (almost always quarterly) using MTD-compatible software.
- You pay the difference between VAT collected and VAT reclaimed to HMRC.
Should you register voluntarily?
You can register before you hit the threshold. It's worth considering if your customers are mostly other VAT-registered businesses, you have significant input VAT to reclaim, or you want a VAT number to look more established to larger clients.
It's a bad idea if you sell mostly to consumers or non-VAT-registered businesses, because you'd effectively be making yourself 20% more expensive overnight.
- Your customers are mostly VAT-registered businesses (they reclaim the VAT, so it costs them nothing).
- You have significant input VAT to reclaim (e.g. you've bought equipment or stock).
- You want to look bigger than you are — a VAT number can boost credibility with larger clients.
What happens if you register late
HMRC will register you with effect from the date you should have registered, and will expect you to account for VAT on all sales from that date — even if you didn't charge it. That can be a nasty bill if you've been over the threshold for several months.
There's also a failure-to-notify penalty (a percentage of the VAT due), which can be reduced if you tell HMRC unprompted.
Need a hand?
We help dozens of growing businesses every year work out when (and whether) to register, choose the right VAT scheme and file their returns. Get in touch for a quick no-pressure chat.
Frequently asked questions
- Are flat-rate scheme rules different?
- The registration threshold is the same. Once you're VAT-registered, you can choose to use the Flat Rate Scheme if your turnover is under £150,000 — it simplifies the calculation but isn't always cheaper. We'll usually run the numbers both ways before recommending one.
- Do I include VAT-exempt sales in the threshold?
- No. Exempt supplies (like insurance, some education and most financial services) don't count towards the £90,000 threshold. Zero-rated and reduced-rated supplies do count.
- Can I deregister if my turnover drops?
- Yes — once your taxable turnover falls below £88,000 (the deregistration threshold) you can apply to leave the VAT scheme. There are some clawback rules on assets you've reclaimed VAT on, so it's worth checking before you pull the trigger.
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