When You Must Register for VAT

The £90,000 threshold and the two tests

VAT is a tax on most sales of goods and services. Once your business is big enough, you have to register for it with HMRC, charge VAT to your customers, and pass that VAT on to the government. The point at which this becomes compulsory is called the registration threshold.

For 2026/27 the threshold is £90,000 of taxable turnover. The word taxable matters. It means your sales that are not exempt from VAT, measured before you take off any expenses. It is your income from selling, not your profit.

There are two separate tests that can force you to register, and you only need to fail one of them. The first looks backwards over the last 12 months. The second looks forwards over the next 30 days. Most people only ever think about the first one, but the second can catch you out, so it is worth understanding both.

If you want the wider picture of how VAT works once you are in the system, our guide to VAT walks through rates, returns and reclaiming.

The rolling 12 month test explained

The first test is the one most businesses hit. You must register if your taxable turnover over any rolling 12 month period goes over £90,000.

The word rolling is the part people get wrong. This is not your accounting year, and it is not the tax year that runs to 5 April. It is a moving window. At the end of every single month you add up your taxable turnover for that month and the 11 months before it. If that running total is more than £90,000, you have crossed the threshold.

So at the end of June you look at the 12 months from the previous July to June. At the end of July you look at the 12 months from the previous August to July. The window slides forward one month at a time, which is why a quiet month early in the year does not protect you once busy months stack up behind it.

Because the test runs at the end of each month, the date you cross the threshold is the last day of the month in which your rolling total first goes over £90,000. That date then drives your deadline, which we come to below.

The future 30 day test

The second test looks forward. You must register if, at any point, you expect your taxable turnover to go over £90,000 in the next 30 days alone.

This is not about a slow build up over a year. It is about a single large piece of work or a one off contract. If you sign a contract on the 10th of the month for £95,000 of work that you will invoice within the coming 30 days, you have to register straight away, even if your turnover for the whole previous year was tiny.

The key word again is expect. You do not wait for the money to arrive. The moment you know the next 30 days will take you over £90,000, the obligation starts. With this test, your effective date of registration is the date you first realised you would go over, not the end of the month.

This test is rare for most small firms but very real for anyone who lands a single big project. If you are weighing up a large contract, it is worth checking the VAT position before you sign. Our page on when to register for VAT and a quick word with us can save a nasty surprise.

A worked example

The lesson is simple. Watch the rolling total every month so you register on time and charge VAT from the right date, rather than discovering the bill later.

Voluntary registration and when it pays

You do not have to wait for the threshold. You can register for VAT voluntarily at any turnover, and for some businesses that is a smart move.

Voluntary registration tends to pay when your customers are themselves VAT registered. A VAT registered customer can reclaim the VAT you charge them, so your prices do not really go up for them. Meanwhile you get to reclaim the VAT on your own costs, such as tools, stock, equipment and software. If you spend a lot on VAT bearing purchases, this reclaim can be worth real money.

It can also help your image. Some larger clients prefer to deal with VAT registered suppliers, and a VAT number can make a young business look more established.

Voluntary registration usually does not pay when you sell mainly to the public or to other businesses that are not VAT registered. These customers cannot reclaim the VAT, so adding 20% either makes you more expensive or eats into your margin if you absorb it. For a window cleaner or a hairdresser serving private customers, registering early often just adds cost and paperwork.

If most of your costs are wages or other items that do not carry VAT, the reclaim benefit is small too. Run the numbers both ways before deciding, and consider whether the VAT Flat Rate Scheme would suit you better than standard VAT.

Deregistration and what changes once registered

VAT works in both directions. If your taxable turnover falls and you expect it to stay below the deregistration threshold of £88,000 over the next 12 months, you can apply to cancel your registration. This is useful if you scale back or stop trading.

Once you are registered, several things change. You must add VAT to your taxable sales at the right rate, normally the standard rate of 20%, though some goods and services are reduced rated at 5% or zero rated at 0%. You must give VAT invoices, file VAT returns, usually every three months, and pay any VAT you owe to HMRC.

You must also keep digital records and file your returns using compatible software, because every VAT registered business has to follow Making Tax Digital for VAT. Good bookkeeping from day one makes this painless rather than a scramble at the deadline.

The upside is that you can reclaim the VAT on most of your business purchases, which softens the blow of charging it.

Common mistakes

The single biggest mistake is treating the threshold like an annual or tax year figure. It is a rolling 12 month figure that you must check at the end of every month. Businesses that only look once a year often register months late.

A second mistake is confusing turnover with profit. The £90,000 test is about your taxable sales, not what is left after costs. Plenty of owners think they are nowhere near the threshold because their profit is modest, when their sales are well over it.

A third is forgetting the 30 day future test. A single large contract can trigger registration immediately, long before your annual figures would.

A fourth is missing the deadline. You have only 30 days from the end of the month you crossed to register, and the effective date is fixed regardless of when you actually get round to it. Register late and you owe VAT from the effective date anyway, often without having charged your customers.

Finally, some people register voluntarily without checking whether it helps. If you sell to the public, it can simply add 20% to your prices for no gain.

What you should do

Start by tracking your rolling 12 month taxable turnover every single month. A simple running total in your accounting software is enough. The moment it nears £90,000, get ready to register.

If you land a large contract, check the 30 day test before you sign, not after. A single project can change your VAT position overnight.

If your customers are mostly VAT registered businesses and you carry real costs, work out whether voluntary registration would put money back in your pocket through input VAT reclaim. If you sell to the public, be cautious about registering before you have to.

When you do register, set up compatible software and tidy bookkeeping straight away so Making Tax Digital is no trouble. You can also use our tax calculators to sense check the figures.

If you are unsure where you stand, we can review your turnover and tell you exactly when and whether to register. Get a fixed fee quote and we will take the guesswork out of it.

Frequently asked questions