VAT Registration: The £90,000 Threshold Explained

VAT catches out more small businesses than almost any other tax, because the registration test looks backwards, not forwards. You can cross the threshold without noticing — and by the time you do, you may already owe HMRC VAT on sales you never charged it on.

The registration threshold

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. This is not aligned to the tax year or your accounting year — it is any consecutive 12 months. At the end of every month, you should look back at the previous 12 and check the total.

You must also register if you expect to exceed £90,000 in the next 30 days alone — for example after signing a single large contract. Taxable turnover counts everything you sell that is not exempt from VAT, including zero-rated sales.

Deadlines once you cross the threshold

• You must notify HMRC within 30 days of the end of the month in which you exceeded the threshold.
• Your registration takes effect from the first day of the second month after you crossed it.
• Fail to register on time and HMRC can backdate your registration and charge the VAT you should have collected, plus penalties.

The main VAT rates

• Standard rate: 20% — applies to most goods and services.
• Reduced rate: 5% — applies to certain items such as home energy.
• Zero rate: 0% — applies to most food, books and children's clothing. Zero-rated sales still count towards the £90,000 test.

Voluntary registration: when it pays

You can register before you hit the threshold, and sometimes you should. If your customers are mainly VAT-registered businesses, they reclaim the VAT you charge, so your prices are no more expensive to them — while you can reclaim VAT on your own costs. If you sell to consumers, however, voluntary registration effectively raises your prices or squeezes your margin.

Schemes that simplify VAT

• Flat Rate Scheme: pay a fixed percentage of turnover to HMRC instead of tracking input and output tax — available to businesses with turnover up to £150,000.
• Cash Accounting Scheme: account for VAT when money moves rather than when invoices are issued — helpful for cash flow if customers pay slowly.
• Annual Accounting Scheme: one return a year with interim payments, smoothing admin.

All VAT-registered businesses must also follow Making Tax Digital for VAT: digital records and returns filed through compatible software.