The UK VAT registration threshold for 2026/27 is £90,000.
That single number matters more to small business cash flow than almost any other tax figure. Cross it without registering — even briefly — and HMRC will bill you for the VAT you should have charged, out of your own pocket. Sit just below it without understanding the rules and you may register too early or miss the deadline entirely.
This guide covers everything: the exact threshold, how the 30-day rule works, the deregistration threshold, voluntary registration, and what actually changes for your business once you are registered.
The Current VAT Threshold
| Tax Year | Registration Threshold | Deregistration Threshold | |----------|-----------------------|--------------------------| | 2024/25 | £90,000 | £88,000 | | 2025/26 | £90,000 | £88,000 | | 2026/27 | £90,000 | £88,000 |
The threshold was raised from £85,000 to £90,000 in April 2024 and has been frozen at this level since. There is no indication of a further increase before at least 2027/28.
The deregistration threshold (£88,000) is deliberately set £2,000 below the registration threshold. This prevents businesses from deregistering and immediately re-registering in a cycle each year.
When Are You Required to Register?
HMRC uses two tests to determine whether you must register for VAT. Fail either one and registration becomes compulsory.
The Historic Test (Rolling 12 Months)
At the end of every calendar month, add up all your taxable turnover for the previous 12 months. If that total exceeds £90,000, you must register.
You have 30 days from the end of the month in which you exceeded the threshold to notify HMRC. Your effective registration date will be the first day of the month after the one in which you crossed the threshold.
Example: Your rolling 12-month taxable turnover crosses £90,000 on 17 May 2026. You must register by 30 June 2026. Your VAT registration date will be 1 June 2026, and you must charge VAT on sales from that date.
The Future Test (Next 30 Days)
If at any point you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone — for example, you land a single large contract — you must register immediately, before the 30-day period begins.
This catches businesses that have a sudden spike. If you sign a £120,000 contract today, you cannot wait until your 12-month rolling total climbs above £90,000.
What Counts as Taxable Turnover?
Taxable turnover is the total value of sales that are not exempt from VAT. This includes:
- Standard-rated sales (currently 20%)
- Reduced-rate sales (5%)
- Zero-rated sales (0%)
Zero-rated sales count toward the threshold even though you charge 0% VAT on them. Many small businesses in food supply, publishing, and children's clothing are surprised to discover their zero-rated sales count.
Exempt supplies do not count. Common exempt categories include:
- Insurance
- Financial services
- Postage stamps
- Education provided by an eligible body
- Health and care services
If your business makes both taxable and exempt supplies, you need to track them separately. Only taxable turnover triggers the registration obligation.
Voluntary VAT Registration
You can register voluntarily at any time, even if your turnover is well below £90,000. There are legitimate reasons to do this early.
When Voluntary Registration Makes Sense
You sell mainly to VAT-registered businesses. If most of your customers are VAT-registered, they can reclaim the VAT you charge. It becomes a neutral cost to them, and you get to reclaim input VAT on all your business purchases from day one.
You have significant business expenses. If you spend heavily on goods, equipment, software, or services that carry 20% VAT, early registration lets you reclaim that input tax immediately rather than waiting until you are forced to register.
You want to appear more established. A VAT number on an invoice signals a business of a certain scale. In some sectors — construction, professional services, wholesale — clients expect their suppliers to be VAT-registered.
When Voluntary Registration Backfires
If your customers are mainly consumers (B2C), charging VAT adds 20% to your prices overnight — without them being able to reclaim it. For a business where price sensitivity is high, this can be a serious competitive disadvantage. Think carefully before voluntarily registering if your end customers are individuals.
What Changes After You Register
Charging VAT on Sales
From your effective registration date, you must charge the appropriate VAT rate on all taxable supplies. For most products and services, that means adding 20% to your net price and issuing a VAT invoice that shows:
- Your VAT number
- The VAT rate applied
- The net amount
- The VAT amount
- The gross total
Reclaiming Input VAT
You can now reclaim the VAT you pay on business purchases. This is the upside of registration — every software subscription, piece of equipment, or professional service you buy at 20% VAT becomes 20% cheaper, in effect.
You can also backdate input VAT claims on certain items:
- Goods: up to 4 years before registration, provided you still own them
- Services: up to 6 months before registration
Filing VAT Returns
Under Making Tax Digital for VAT, you must file VAT returns digitally using compatible software. HMRC no longer accepts returns submitted via the old online portal for standard VAT-registered businesses.
VAT returns are typically submitted quarterly. You have one calendar month and seven days after the end of each VAT period to submit and pay.
If you use cash accounting, VAT is accounted for on payments received rather than invoices raised. This helps cash flow but adds bookkeeping complexity.
VAT Schemes to Consider
- Flat Rate Scheme: Pay a fixed percentage of gross turnover instead of calculating input and output VAT separately. Simpler, but may cost more or less depending on your sector. Available until turnover exceeds £150,000.
- Cash Accounting Scheme: Account for VAT on cash received and paid, rather than invoice dates. Useful if customers pay slowly.
- Annual Accounting Scheme: File one VAT return per year and make interim payments. Reduces admin but delays the full reconciliation.
Our VAT Flat Rate Scheme guide covers whether the flat rate scheme is worth it for your type of business.
The Penalty for Missing the Registration Deadline
HMRC takes late registration seriously. If you register late, they will assess the VAT you should have charged — and you will owe it even if you never collected it from customers.
Penalties are calculated as a percentage of the VAT owed from the date you should have registered:
| Period of Delay | Penalty Rate | |----------------|-------------| | Up to 9 months | 5% | | 9–18 months | 10% | | Over 18 months | 15% |
On top of the penalty, HMRC charges late payment interest on the outstanding amount. For a business that crossed the threshold a year ago and has been invoicing at net prices since, this can easily add up to a five-figure bill.
Keeping Track of Your Rolling Turnover
The 12-month rolling test means you need to be checking your position every month, not just at year-end.
A simple approach in Xero:
- Go to Reports > Business Performance > Income by Contact and filter to the last 12 months
- Export to CSV and sum all taxable income lines
- Compare against £90,000
If you are using our free VAT calculator, you can also use it to model the impact on your pricing once registered — useful for deciding whether to absorb the VAT or pass it on.
Summary
- VAT registration threshold: £90,000 (rolling 12-month taxable turnover)
- Deregistration threshold: £88,000
- You have 30 days from month-end to register once you cross the threshold
- The future test means a single large contract can trigger immediate registration
- Zero-rated sales count toward the threshold; exempt supplies do not
- Voluntary registration is worth considering if most customers are VAT-registered businesses
If you are approaching the threshold and unsure what to do, speak to your accountant before the month-end that puts you over. Registering a month early costs nothing. Registering a year late costs considerably more.
Drakon Systems builds tools for UK small businesses and accountants. Our free VAT calculator handles standard, reduced, and zero rates. The AI Invoice Importer captures supplier invoices directly into Xero without manual entry.