What is the VAT threshold in 2026?

The VAT registration threshold in 2026 (covering the 2025/26 and 2026/27 tax years) is £90,000 of taxable turnover in any rolling 12-month period. This was increased from £85,000 in April 2024. If your business exceeds this threshold, you are legally required to register for VAT with HMRC.

The two tests for mandatory registration:

Historic test: At the end of any month, look back over the previous 12 months. If your total taxable turnover in that period exceeds £90,000, you must register. You have 30 days from the end of that month to notify HMRC. Registration takes effect from the first day of the second month after you exceeded the threshold.

Future test: At any point, if you expect your taxable turnover to exceed £90,000 in the next 30 days alone (for example, you sign a large contract), you must register immediately. Registration takes effect from the date you form that expectation.

Example timeline (historic test): - Your rolling 12-month turnover exceeds £90,000 on 15 March 2026 - End of that month: 31 March 2026 - You must notify HMRC by: 30 April 2026 - Your VAT registration effective date: 1 May 2026 - From 1 May, you must charge VAT on all taxable supplies

What counts as taxable turnover?

Taxable turnover includes all sales of goods and services that are subject to VAT, whether at the standard rate (20%), reduced rate (5%), or zero rate (0%). It does not include: - Exempt supplies (financial services, insurance, education, healthcare) - Sales outside the scope of UK VAT (some overseas transactions) - Capital asset disposals (selling off business equipment)

Zero-rated sales (such as children's clothes, most food, books) do count towards the threshold even though VAT is charged at 0%. This catches some businesses by surprise.

The deregistration threshold: £88,000

If you are already VAT-registered and your taxable turnover falls below £88,000, you can apply to deregister. This is voluntary. You do not have to deregister if you want to remain registered. The £2,000 gap between the registration threshold (£90,000) and the deregistration threshold (£88,000) prevents businesses from constantly registering and deregistering.

Voluntary registration

You can register for VAT voluntarily even if your turnover is below £90,000. This is often beneficial if: - Most of your customers are VAT-registered businesses (they can reclaim the VAT you charge, so it does not affect their cost) - You make significant purchases with VAT that you want to reclaim (equipment, stock, professional services) - You make zero-rated supplies (you charge 0% VAT but can still reclaim input VAT on your costs) - You want to appear larger or more established to potential clients

Voluntary registration is less beneficial if most of your customers are consumers who cannot reclaim VAT, as you would need to either increase your prices by 20% or absorb the VAT from your margins.

VAT schemes for small businesses

Once registered, you can opt for simplified VAT schemes:

Flat Rate Scheme: Pay a fixed percentage of your gross turnover to HMRC instead of tracking individual input and output VAT. The percentage depends on your trade sector (e.g., 14.5% for computer and IT consultancy, 16.5% for management consultancy). In the first year, you get a 1% discount. This scheme is available if your taxable turnover is £150,000 or less.

Annual Accounting Scheme: Submit one VAT return per year instead of quarterly. Make advance payments based on estimated liability, with a balancing payment at year end. Available if turnover is under £1.35 million.

Cash Accounting Scheme: Account for VAT when you receive or make payment, rather than when you issue or receive invoices. This helps cash flow if you have slow-paying customers. Available if turnover is under £1.35 million.

VAT return frequency and deadlines

Most businesses submit quarterly VAT returns. The return and payment are both due one month and 7 days after the end of the VAT quarter. For example, a quarter ending 31 March has a deadline of 7 May.

Under Making Tax Digital (MTD), you must keep digital records and submit returns using compatible software. This applies to all VAT-registered businesses.

Penalties for late registration

If you fail to register on time, HMRC will register you from the date you should have been registered. You will owe VAT on all taxable sales from that date, even though you did not charge VAT to your customers. This means the VAT comes out of your margin. Additionally, HMRC may charge a late registration penalty of up to 15% of the VAT owed during the late period.