Tax

What is VAT Threshold?

The VAT threshold is the annual turnover level above which you must register for VAT. Below this, VAT registration is optional.

Current Rate (2025/26)

£90,000 (from April 2024)

Example

If your business turnover hits £90,000 in any 12-month period, you must register for VAT within 30 days.

Key Dates

Check your rolling 12-month turnover regularly

How VAT Threshold Works in Practice

The VAT registration threshold is the level of taxable turnover at which a business must register for VAT with HMRC. From 1 April 2024, this threshold is £90,000. This was an increase from the previous £85,000 threshold which had been frozen since April 2017. The deregistration threshold is £88,000.

The threshold is based on taxable turnover, not profit. Taxable turnover includes all supplies that would be taxable at the standard, reduced, or zero rate. It does not include exempt supplies or income from outside the scope of VAT (such as income from outside the UK in certain circumstances). This is a crucial distinction because directors often focus on profit when they should be watching revenue.

There are two tests for mandatory registration. The historical test looks at whether your taxable turnover has exceeded £90,000 in the past 12 months (on a rolling basis, not a calendar or tax year). The future test considers whether you expect your taxable turnover to exceed £90,000 in the next 30 days alone. Either test being met triggers mandatory registration.

When you breach the threshold, you must notify HMRC within 30 days. Your VAT registration is then effective from the first day of the second month after you crossed the threshold (under the historical test). Late registration means you owe VAT on sales from the effective registration date, even though you did not charge your customers. This creates a direct cost to your business.

Step by Step

You need to monitor your taxable turnover on a rolling 12-month basis. This is not the same as your financial year or the tax year. At any point, look back over the previous 12 months and add up your taxable turnover. If it exceeds £90,000, you must register.

To register, you apply online through the HMRC VAT registration service. You will need your company UTR, business bank account details, and an estimate of your expected turnover. HMRC typically processes registrations within a few weeks and issues your VAT number, which you must show on all invoices.

Once registered, you start charging VAT on all taxable supplies from your effective date of registration. You can reclaim VAT on stock and assets you held at the date of registration, subject to certain conditions. You can reclaim VAT on services purchased up to 6 months before registration and goods held at the registration date purchased up to 4 years before registration, as long as they relate to your taxable business.

Practical Tips

Set up a monthly reminder to check your rolling 12-month taxable turnover, and start planning for registration once you pass £70,000
If you are approaching the threshold, consider whether voluntary early registration benefits you by allowing input VAT recovery on setup costs
Keep a simple spreadsheet tracking monthly turnover so you can spot the breach early rather than discovering it retrospectively
When you register, review your pricing to ensure your margins still work after adding 20% VAT, especially if your customers are consumers who cannot reclaim it

Common Mistakes to Avoid

Only checking turnover at the end of each financial year instead of monitoring a rolling 12-month period, leading to late registration and backdated VAT liability
Including exempt income in the threshold calculation, or excluding zero-rated sales which do count towards the threshold
Registering late and then having to absorb the VAT on past sales because you cannot go back and charge customers retrospectively
Not considering voluntary registration when it would be beneficial, such as when selling mainly to VAT-registered businesses

Frequently Asked Questions

What is the current VAT registration threshold?

The VAT registration threshold is £90,000 from 1 April 2024. This is based on your taxable turnover over any rolling 12-month period. The deregistration threshold is £88,000.

Is the VAT threshold based on turnover or profit?

The threshold is based on taxable turnover (revenue), not profit. This means even if your business makes a loss, you must register for VAT if your taxable turnover exceeds £90,000. All standard-rated, reduced-rated, and zero-rated supplies count.

What happens if I go over the VAT 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. You then must charge VAT on all taxable sales from that date.

Should I register for VAT voluntarily?

Voluntary registration makes sense if your customers are mainly VAT-registered businesses who can reclaim the VAT, if you make significant purchases with VAT that you want to reclaim, or if being VAT-registered adds credibility. It makes less sense if you sell to consumers who cannot reclaim VAT.

Can I deregister from VAT if my turnover drops?

Yes. If your taxable turnover falls below £88,000 (the deregistration threshold) and you expect it to stay below, you can apply to deregister. You may need to account for VAT on any stock and assets you hold at deregistration.

Source: HMRC VAT Notice 700/1 - Should I be registered for VAT?

Related Terms

VAT (Value Added Tax)

VAT is a tax added to most goods and services sold in the UK. Businesses collect it from customers and pay it to HMRC, minus any VAT they've paid on business purchases.

Turnover

Turnover is your total business income before deducting any costs or expenses. It's also called revenue or gross income.

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