When Do You Need to Register for VAT? The £90,000 Threshold Explained

The £90,000 threshold — and the mistake most people make

You must register for VAT when your taxable turnover exceeds £90,000 (the threshold since April 2024). The trap is how the test is measured: it is a rolling 12-month total, checked at the end of every month — not your accounting year, and not the tax year.

That means a busy few months can tip you over mid-year without you noticing. At the end of each month you should look back over the previous twelve and total your taxable sales. Once that figure crosses £90,000, you have 30 days from the end of that month to notify HMRC, and registration takes effect from the first day of the second month after you went over.

There is also a forward-looking test: if you expect your taxable turnover to exceed £90,000 in the next 30 days alone — a single large contract can do it — you must register immediately, and registration takes effect from the date you formed that expectation.

What happens if you register late

Miss the deadline and HMRC treats you as registered from the date you should have been. You owe VAT on everything you sold from that date — whether or not you charged it to customers — plus a late-registration penalty calculated as a percentage of the VAT due, which increases the longer the delay.

For a business that went over the threshold a year ago without realising, that can mean handing over roughly a sixth of a year’s sales that was never priced in. Monitoring the rolling total every month is far cheaper than discovering the problem in an HMRC review.

Voluntary registration: sometimes worth it below the threshold

You can register voluntarily at any turnover level, and for some businesses it makes sense.

• Reclaim VAT on your costs — valuable if you buy a lot of standard-rated goods, equipment or stock
• Sell mainly to VAT-registered businesses — they reclaim the VAT you charge, so your prices are not really higher to them
• Zero-rated sales — if you sell zero-rated goods but pay VAT on costs, registration usually generates repayments
• Credibility — some larger customers prefer dealing with VAT-registered suppliers

The downside falls on businesses selling to the public: consumers cannot reclaim VAT, so registering means either raising prices by 20% or absorbing the VAT out of your margin. If your customers are mostly individuals and your costs are low, staying below the threshold is often the better commercial position.

Deregistration and the schemes worth knowing

If your taxable turnover falls and you expect it to stay below £88,000 over the next twelve months, you can apply to deregister — useful for businesses that have downsized or dropped a line of work.

Once registered, you also choose how to account for VAT, and the right scheme can save real money and admin.

• Standard VAT accounting — reclaim input VAT on purchases, account for output VAT on sales, usually quarterly
• Flat Rate Scheme — pay a fixed percentage of gross turnover; simpler, but the limited-cost trader rules make it poor value for many service businesses
• Cash Accounting Scheme — pay VAT when customers pay you, not when you invoice; a genuine cash-flow help if clients pay slowly
• Annual Accounting Scheme — one return a year with instalments through the year

VAT returns are digital — and we can take the whole job on

All VAT-registered businesses must follow Making Tax Digital rules: digital records and returns filed through compatible software. Registration therefore usually means moving to cloud bookkeeping at the same time — which is worth doing properly from day one.

Bayar Hughes & Co, chartered certified accountants in New Eltham, London SE9, has handled VAT for local businesses since 1991. We monitor your turnover against the threshold, register you at the right moment, pick the scheme that suits your numbers, and file every return on time. Call +44 7441 347796 for a straightforward conversation about where you stand.