VAT Threshold Explained (UK)

If you run a growing business in the UK, understanding the VAT threshold is really important. A lot of business owners assume VAT registration is based on the tax year or their annual accounts, but that’s not actually how it works.

If you miss the point where you should have registered, HMRC can ask for backdated VAT, along with interest and penalties, so it’s something worth staying on top of.

In this guide, we explain how the VAT threshold works, when you must register, and whether voluntary registration could benefit your business.

What Is the VAT Threshold?

The VAT threshold is the amount of VAT-taxable turnover your business can reach before you must register for VAT with HMRC.

As of 2026, the compulsory VAT registration threshold is £90,000

You’ll usually need to register if either of these applies:

• Your total VAT-taxable turnover for the last 12 months goes over £90,000, or

• You expect your turnover to exceed £90,000 in the next 30 days alone 

This threshold increased from £85,000 to £90,000 in April 2024.

It’s a Rolling 12-Month Test

This is where many people get caught out.

VAT registration is not based on the tax year, and it’s not based on your company's year-end either. HMRC looks at your turnover on a rolling 12-month basis.

That means every month, you should be looking back at the previous 12 months to see if you’ve gone over the threshold.

Example

If your turnover between August 2025 and July 2026 reaches £92,000, you may need to register, even if your annual accounts tell a different story.

What Counts Towards the VAT Threshold?

Your VAT-taxable turnover includes:

• Standard-rated sales (20%)

• Reduced-rate sales (5%)

• Zero-rated sales (0%)

• Goods hired or loaned to customers

• Business goods used personally

• Barter transactions

• Certain reverse charge transactions

It generally does not include:

• VAT-exempt sales (such as some financial services or education)

• income that is outside the scope of VAT

This is where things can get confusing, especially if your business has different income streams, so it's best to get professional advice if you're not 100% sure.

When Must You Register?

There are two main situations where VAT registration becomes compulsory:

1. Historic Test

If your VAT-taxable turnover exceeds £90,000 in the previous 12 months, you must register. You usually need to register within 30 days of the end of the month in which you crossed the threshold.

2. Future Test

If you know your turnover will exceed £90,000 in the next 30 days alone, for example, after winning a large contract, you must register immediately.

In this case, your effective registration date is the date you realised this would happen, not when payment is received.

What Happens If You Register Late?

Late VAT registration can become expensive very quickly.

HMRC may ask you to pay VAT from the date you should have registered, not the date you actually applied. That means you could end up paying VAT on income you’ve already received, without having charged your customers for it.

On top of that, there may be penalties and interest added as well.

For growing businesses, this can create a real cash flow problem.

Can You Register Voluntarily?

Yes! Even if your turnover is below £90,000, you can choose to register voluntarily.

This can be useful if:

• Your clients are VAT-registered businesses

• You want to reclaim VAT on purchases

• Registering improves credibility

• You want to avoid registering suddenly later

However, voluntary registration also means:

• More admin

• Keeping up with VAT return submissions

• Making Tax Digital compliance

• Potential pricing pressure if your customers are consumers

There’s no one-size-fits-all answer, so make sure to weigh up if voluntary registration would suit you.

What About Deregistration?

If your turnover falls and you no longer need to stay VAT registered, the deregistration threshold is currently: £88,000

If you expect your taxable turnover to stay below this level, you can decide to deregister. This can help reduce admin and simplify things, depending on the type of business you run.

Final Thoughts

The main thing to remember is that VAT registration isn’t something to think about once a year; it needs regular monitoring.

Keeping track of your turnover each month helps avoid surprises and gives you time to plan properly.

Whether you need to register now or you’re thinking about voluntary registration, getting advice early is usually far easier and cheaper than fixing a problem later.

Need Help With VAT Registration?

If you're approaching the VAT threshold or unsure whether your turnover requires registration, our team can help.

We support sole traders, limited companies, and startups with:

• VAT registration

• VAT returns

• Making Tax Digital compliance

• VAT planning and advice

Getting it right early is always cheaper than fixing it later.