What is the VAT threshold in 2025?
The VAT threshold in 2025 is £90,000. If your taxable turnover exceeds this amount in any rolling 12-month period, you must register for VAT.
Detailed Explanation
The VAT registration threshold for 2025 is £90,000. This was increased from £85,000 in April 2024. You must register for VAT if your VAT taxable turnover exceeds £90,000 in any rolling 12-month period, or if you expect to exceed this threshold in the next 30 days alone.
The deregistration threshold is £88,000 - if your taxable turnover falls below this, you can apply to deregister.
Voluntary registration is possible even if you're below the threshold, which can be beneficial if you sell primarily to VAT-registered businesses or make significant zero-rated supplies.
Source: HMRC VAT Registration Threshold 2024/25
Real-World Examples
Rapid Business Growth
Your limited company has experienced a surge in sales. In the last 11 months, your taxable turnover was £82,000, and you anticipate another £10,000 in sales this month. You've now exceeded the £90,000 VAT threshold and are legally obliged to register for VAT.
Future Sales Forecast
You're launching a new product line and project that in the next 30 days, your sales will reach £95,000. Even though your current turnover is significantly lower, the projected sales exceeding the £90,000 threshold trigger an immediate requirement to register for VAT with HMRC.
Falling Below the Deregistration Threshold
After a period of high growth, your sales have slowed down. Your taxable turnover for the past year is now £86,000. Since you are below the deregistration threshold of £88,000 you can now apply to deregister from VAT, although you may still choose to remain VAT registered voluntarily.
Common Mistakes to Avoid
- Assuming the VAT threshold only applies to a calendar year instead of a rolling 12-month period.
- Forgetting to monitor projected sales and only focusing on historical turnover, potentially missing the 30-day rule.
- Failing to register for VAT promptly after exceeding the threshold, leading to potential penalties from HMRC.
- Not considering the benefits of voluntary VAT registration, even when turnover is below the threshold, especially if your customers are VAT registered.
Frequently Asked Questions
What counts as 'taxable turnover' for VAT registration?
Taxable turnover includes most sales, but excludes items like sales of exempt goods or services, and transactions outside the scope of VAT (e.g., some overseas transactions). Review HMRC guidance for a definitive list.
How quickly do I need to register for VAT once I exceed the threshold?
You must register by the end of the month following the month in which you exceeded the threshold. Failure to register on time can result in penalties from HMRC.
If I'm close to the threshold, can I artificially suppress sales to avoid VAT registration?
Artificially suppressing sales to avoid VAT registration is illegal and can lead to severe penalties from HMRC. It's better to register and comply with VAT regulations.
What happens if I voluntarily register for VAT and then my turnover drops significantly?
If you voluntarily register for VAT, you can deregister if your taxable turnover falls below the deregistration threshold (£88,000). However, you must typically remain registered for at least two years before you can apply to deregister.
Practical Tips
- Set up a monthly turnover tracker to monitor your sales against the VAT threshold; use a spreadsheet or accounting software.
- If you're approaching the threshold, review your pricing strategy to account for the impact of VAT on your products or services.
- Consult with a qualified accountant well in advance of potentially exceeding the threshold to discuss your options and ensure compliance.
- If you believe you're eligible to deregister from VAT, submit your application to HMRC promptly to avoid unnecessary VAT liabilities.
Related Questions
When do I need to register for VAT?
You must register for VAT when your taxable turnover exceeds £90,000 in any 12-month period, or if you expect to exceed it in the next 30 days.
What is the Flat Rate VAT Scheme?
The Flat Rate VAT Scheme lets you pay a fixed percentage of your turnover as VAT instead of calculating VAT on every sale and purchase. It simplifies VAT accounting for small businesses.
How often do I submit VAT returns?
Most businesses submit VAT returns quarterly, with payment due one month and seven days after the period ends. You can also opt for monthly or annual returns in certain circumstances.
Get instant answers to all your accounting questions
AccountsOS uses AI to answer your tax and accounting questions in plain English. No more Googling or waiting for your accountant.
Get Started FreeFree during Early Access - No credit card required