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Understanding the VAT Threshold and when to register

Value Added Tax (VAT) registration can be a major milestone in a business’ lifecycle, but it comes with a range of additional compliance requirements and deadlines.

Value Added Tax (VAT) registration can be a major milestone in a business’ lifecycle, but it comes with a range of additional compliance requirements and deadlines. Planning ahead for when the business reaches the VAT threshold can help ensure there is minimal disruption.

UK businesses must register for VAT if their taxable turnover is or exceeds £90,000 in a rolling 12-month period. Below, we explain how the threshold works, how to calculate your turnover, and when to register.

What is the UK VAT threshold?

A business must be registered for VAT if their total taxable sales cross the current UK VAT threshold of £90,000 over any rolling 12-month period, or if they are expected to exceed that value in the next 30 days alone. Your taxable turnover is the total value of all sales which are taxed at the standard rate, reduced rate, and zero rate. You will also need to include the value of reverse charge services received from abroad and the value of any self-supplies.

Monitoring your turnover: the 12-month rolling look-back (Historic test)

To ensure compliance, VAT taxable turnover must be monitored on a rolling 12-month basis at the end of every single month. If taxable turnover for the previous 12 months exceeds £90,000 (current threshold) at any month-end, HMRC must be notified within 30 days. Failing to register on time leads to late registration penalties.

To avoid these issues, businesses could:

  • Schedule a calendar reminder on the first of each month.
  • Generate a rolling 12-month sales report using your digital accounting software.
  • Cross-reference your totals against the £90,000 limit to spot trends early.

Expecting to exceed: the 30-day future test

Alongside the 12-month historic test, businesses must also monitor immediate future sales under the future test. If taxable turnover (as detailed above) is expected to exceed £90,000 in the next 30 days alone, the business must notify HMRC to register for VAT This often happens when a business secures a high-value contract or a large project payment.

When applying the future test, businesses should:

  • Check the agreement date of any new contract.
  • Look for one-off invoices that instantly exceed £90,000.
  • Submit an application to HMRC within 30 days of realising the limit will be breached.

Are there exceptions for temporarily breaching the limit?

If the VAT threshold is temporarily exceeded, due to seasonal or one-off trade spikes, an application can be made to HMRC for an exception from registration.

To successfully apply for an exception:

  • A formal request must be submitted to HMRC within 30 days of the breach.
  • Clear evidence must be provided to HMRC, to show that turnover will drop back below the current deregistration limit of £88,000 in the next 12 months.

Exemption from VAT registration

Businesses that only make zero-rated sales may be able to avoid registering for VAT by applying to HMRC for an exemption. HMRC will consider the request and decide whether to grant it. This may not be the best approach if the business will incur significant VAT costs.

Voluntary VAT registration

It is possible to voluntarily register for VAT regardless of whether the £90,000 limit is reached.

Voluntary registration can offer advantages for growing businesses including:

  • Reclaiming VAT on business purchases and start-up costs.
  • Enhancing credibility to make the business look more established.
  • Simplifying future scaling by avoiding sudden price jumps when the limit is reached.

However, if all or most of your customers are private individuals, voluntarily registering for VAT may not be beneficial, as it could make your prices less competitive.

Making Tax Digital

Once the business is VAT registered, Making Tax Digital (MTD) regulations must be complied with. MTD requires businesses to keep digital records and submit VAT returns using compatible software.

Compliance under MTD requires:

  • Digital records of all business transactions and sales invoices
  • MTD-compatible software to be used to prepare and submit periodical VAT returns
  • Digital links to be created between any spreadsheets or software tools that are used.

We’re here to help

Managing your VAT requirements doesn't need to be stressful, if you need to register for VAT today, are unsure if your business needs to register for VAT or have any other VAT related enquiries, please get in touch with a member of our VAT specialist team or speak to your usual Azets adviser.

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FAQs UK VAT Threshold

If your taxable turnover exceeds VAT threshold in any 12-month period, you must register for VAT. Your taxable turnover is the total value of everything your business sells at standard rate, reduced rate, or zero-rate VAT including reverse charge services received from abroad and self-supplies. The VAT threshold is set on an annual basis.

If your VAT taxable turnover falls below the current VAT deregistration threshold of £88,000, you may be eligible to cancel your VAT registration with HMRC. The VAT registration threshold is currently £90,000, while the deregistration threshold is set slightly lower to reduce the need for businesses to repeatedly register and deregister when turnover fluctuates.

Falling below the VAT threshold does not automatically remove your VAT registration. You can choose to remain VAT registered, or apply to HMRC for voluntary VAT deregistration if you expect your taxable turnover to stay below the deregistration limit. HMRC may ask for evidence that your turnover is likely to remain below the threshold over the next 12 months.

No. The £90,000 threshold determines when you must register. Once registered, you must charge VAT on all taxable sales from your registration date. If you voluntarily register for VAT before reaching £90,000, you charge VAT from the first day of registration, irrespective of turnover.

Naveen Sahney
Naveen Sahney

Director

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