- The VAT threshold for 2026 is £90,000 in taxable turnover across any 12-month period (not calendar year).
- If you go over the limit, you must register with HMRC within 30 days.
- You can register your business voluntarily if you’re under the threshold.
- You can cancel your VAT registration if your turnover drops below £88,000.
What is the VAT threshold for 2026?
The VAT registration threshold for 2026 is £90,000. If your business earns more than that in VAT-taxable sales over any rolling 12 months, not based on the calendar year, you’ll need to sign up for VAT.
Therefore, you should review your turnover at the end of each month. If it crosses £90,000, you must register with HM Revenue and Customs (HMRC) in the next 30 days.
The threshold is set by the government and reviewed annually, and was last updated in April 2024.
See also: What is a VAT Number (Value Added Tax Identification Number)?
If your turnover only goes over the threshold because of a one-off event, you can apply for an exemption—but you’ll need to show that your income will stay below the limit going forward
What is taxable turnover?
Your taxable turnover is the total value of everything your business sells that’s subject to VAT, excluding the VAT itself. It covers most of your goods and services, including those charged at the standard, reduced, or zero rate.
It doesn’t include anything that’s VAT-exempt, like certain financial or medical services.
However, taxable turnover isn’t just about what you sell. It also includes things like:
- Goods you loan or hire out
- Business items you use personally
- Bartered or gifted goods
- Services you receive from overseas (where the VAT ‘reverse charge’ applies)
- Large construction work (over £100,000) done by your own business for its own use
Let’s say you run a software company that provides project management tools to other UK businesses. You charge £1,000/month for your platform. Over 12 months, you bring in £80,000 from subscriptions and £15,000 from one-off setup or support fees. Your taxable turnover is £95,000, you’ve crossed the threshold and must register for VAT.
Your taxable turnover would include:
- Monthly or annual SaaS subscriptions
- Setup and onboarding fees
- Any training or consultancy you offer
- Even if you invoice, but haven’t been paid yet
It could also include:
- Software licences provided as part of a bundle
- Free trials that convert to paid plans
It wouldn’t include:
- Sales to customers outside the UK (if they qualify as exports)
- Income from exempt services like financial advice (if offered separately)
Now, let’s assume you bought a laptop for your business. A few months later, you start using it for personal purposes, such as streaming films or managing your household budget. HMRC treats that as a taxable supply, as if your business sold the item to you personally. Therefore, its value must also be included in your taxable turnover.
Can I register for VAT voluntarily if my turnover is below the threshold?
Yes. You can opt for voluntary VAT registration, even if your turnover hasn’t hit the £90,000 mark. And for many businesses, it’s a smart move.
If you mainly work with VAT-registered clients, voluntary registration means you can reclaim VAT on things like software, equipment, or professional services. It can also enhance your credibility, as clients may perceive your business as more established.
Other benefits include:
- Getting used to VAT rules early on
- Building digital records in line with Making Tax Digital
- Avoiding the last-minute scramble if your turnover suddenly grows
But there’s a catch: once you’re registered, you have to follow all the VAT rules. That means:
- Charging the correct VAT rate on your invoices
- Keeping proper records
- Submitting returns on time, every quarter or year
Watch Video: UK VAT Registration Threshold Explained
If you’re considering voluntary registration, weigh the extra administrative burden against the potential savings. Email us info@yourcompanyformations.co.uk for tailored advice.
Is it better to stay under the VAT threshold?
If your taxable turnover goes over £90,000, you are required by law to register for VAT. However, we see some small ventures, especially those selling directly to consumers, attempt to stay under the threshold to avoid additional administration and costs. We see businesses trying to limit their working hours or turning away jobs just to stay under the threshold.
Some business owners even look at changing their structure. For example:
- A sole trader might switch to a limited company, which resets the 12-month clock for VAT calculations.
- A limited company might set up a separate LLP to divide operations and manage turnover more flexibly.
We get it. Adding VAT could mean raising your prices and risking pushback from customers, or absorbing the costs and reducing your profits. However, it is essential to note that. HMRC keeps a close eye on businesses that split income or structure their affairs to avoid VAT.
If you decide to split your business into two, for example, each entity needs to be fully independent, with its own bank account, staff, premises, and branding.
From our experience, embracing VAT registration as part of business growth can often be more beneficial than avoiding it. While increasing costs to accommodate VAT might deter some clients, particularly in B2C markets, many businesses can earn more with less effort by raising their prices and passing the VAT burden to consumers. After all, VAT is ultimately a tax on consumers.
Working through specific scenarios that affect your business with an experienced tax consultant is crucial. Limiting your growth to stay under the UK’s VAT registration threshold is unnecessary and counterproductive. While registration does come with administrative responsibilities, such as filing VAT returns, these are often manageable and should be seen as part of the growing pains of scaling a successful business.
Another way to manage compulsory VAT registration is to choose a VAT scheme that aligns with the nature of your business. For example, the Flat Rate Scheme simplifies VAT obligations by reducing the need to track VAT on every purchase. Instead, businesses pay a fixed percentage of their gross turnover, often at a rate lower than the standard VAT rate, making compliance more straightforward and less time-consuming.
What are the pros and cons of being VAT registered?
Deciding whether to become a VAT-registered business isn’t just about crossing a threshold; it’s about weighing how registration will impact your operations, finances, and perception in the market.
Even if your taxable turnover is close to the limit, understanding the trade-offs can help you make the right call for your business.
Pros of VAT registration
- Claim back VAT paid on business purchases and expenses
- Boost credibility with customers and the VAT-registered supply chain
- Access simplified schemes like cash accounting or annual returns
Cons of VAT registration
- You must charge VAT on all applicable goods or services
- Increases paperwork and admin, especially for self-employed individuals
- Can strain cash flow if clients delay payments, but VAT is due upfront
Review these factors before you register and account for VAT, especially if you’re near the taxable turnover threshold.
Find out more: What are the pros and cons of being VAT registered?
What happens if I fail to register for VAT on time?
Missing your VAT registration deadline can quickly turn into an expensive mistake. If your taxable turnover exceeds the threshold and you delay notifying HMRC, you may still be expected to pay VAT from the date you should have registered, even though you didn’t charge it to your customers.
In addition to backdated VAT, HMRC may impose penalties based on the extent of the delay, whether it was deliberate, and the amount of VAT that should have been collected. It’s a key part of the UK VAT compliance process that businesses registered for VAT must stay on top of.
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See also: How to check a UK VAT Number validity on GOV.UK and VIES
What are the different VAT rates in the UK?
There are three main UK VAT rates, and which one applies depends on the type of goods and services you sell. Knowing the difference between VAT categories is essential to ensure you charge the correct rate of VAT, especially when dealing with customers both inside and outside the UK.
| VAT Rate | Percentage | Examples of Where It Applies |
|---|---|---|
| Standard Rate | 20% | Most goods and services, including electronics, clothing, and professional services |
| Reduced Rate | 5% | Certain goods and services like home energy, children’s car seats, mobility aids |
| Zero Rate | 0% | Food, books, children’s clothes, exports outside the UK, Northern Ireland trade |
These UK VAT rates are reviewed annually and are key to correctly calculating VAT collected, issuing compliant VAT invoices, and staying aligned with MTD for VAT.
What is the VAT deregistration threshold?
The VAT deregistration threshold is currently £88,000. If your taxable turnover drops below this amount, you can apply to cancel your VAT registration.
This can be helpful if:
- You’ve stopped trading.
- You no longer sell goods or services that are subject to VAT.
- You’re changing your business setup—like switching from a sole trader to a limited company.
- You’re joining a VAT scheme that requires a different registration.
Deregistering with HMRC can ease your admin load, as you’ll no longer need to charge VAT or file VAT returns.
If you’re considering cancelling your VAT registration, ensure that your accounts and returns are entirely up to date. It’s also a good idea to consult with a tax advisor to ensure it’s the right move for your business.
Can I deregister my business from VAT?
Yes, you can deregister your business from VAT if your turnover falls below the current deregistration threshold.
You may also cancel your registration for VAT if you’ve stopped making taxable supplies altogether. The threshold is reviewed annually in the UK, so always check the latest figure before making a decision.
To do this, you’ll need to apply through HMRC and ensure all VAT obligations are settled, including your final VAT return and any value added tax due. Once approved, you’ll receive a VAT certificate confirming your cancellation date.
How often do I need to submit VAT returns?
Most businesses enrolled in VAT in the UK are required to submit VAT returns quarterly, covering a three-month tax period. This is the standard reporting cycle, unless you’ve opted into a special arrangement, such as the Annual Accounting Scheme, which allows you to submit one VAT return per year instead of four.
Under certain schemes, like the Flat Rate Scheme, the frequency stays the same, but the way VAT applies to your sales may differ. Whichever method you use, ensure you’re keeping accurate records, including your VAT invoices, so you stay compliant and avoid last-minute filing stress.
How do I determine which VAT scheme is best for my business?
Choosing the right VAT scheme can simplify your finance admin, improve cash flow, and help you stay compliant, especially if your VAT-liable turnover exceeds the threshold or you’re scaling rapidly. HMRC offers several options, each designed to suit different business sizes and operating models.
The best choice depends on how you invoice, how often you get paid, and the nature of your goods or services.
Here’s a quick breakdown to help you decide:
- Standard Accounting Scheme: Report VAT on all invoices; best for businesses with stable income and strong record-keeping.
- Flat Rate Scheme: Pay a fixed percentage based on industry; simpler, but you can’t reclaim VAT on purchases.
- Annual Accounting Scheme: Submit one return per tax year; great for planning, but may not suit businesses with fluctuating turnover.
- Cash Accounting Scheme: Pay VAT only when you’re paid; ideal for businesses with tight cash flow or customers who pay late.
Which goods and services are exempt from VAT?
Not all goods or services in the UK are subject to VAT.
Some are completely VAT exempt, meaning that even if your turnover crosses the threshold, VAT doesn’t apply. This is important when determining your eligibility to register and understanding your obligations to customers and the VAT system.
Common VAT-exempt categories include:
- Education and training services
- Health and medical care (e.g., GP or dental treatment)
- Financial and insurance services
- Charitable fundraising events
- Postage and stamps provided by Royal Mail
These exemptions apply only to certain goods and services, so it’s essential to check the full list. You can find HMRC’s official exemption categories here.
Are there new VAT requirements under Making Tax Digital (MTD)?
Yes, under HMRC’s MTD rules, all businesses registered for VAT must now follow digital reporting requirements. This means that if your business is registered for VAT, you must legally keep VAT records digitally and submit returns using MTD-compliant software.
These rules apply whether you’re above or below the threshold, and compliance is no longer optional. MTD is designed to improve accuracy, reduce admin errors, and make VAT reporting more efficient for UK businesses.
How do I file a VAT return using Making Tax Digital (MTD)?
If your taxable turnover rises above the VAT threshold, you’re legally required to follow the MTD rules when submitting returns. Here’s how to stay compliant and avoid penalties:
- Sign up for MTD for VAT through the HMRC website.
- Use MTD-compliant software to keep digital VAT records.
- Link your VAT account to the software to enable direct submissions.
- Record your sales and purchases digitally, no more manual spreadsheets.
- Submit your return by the VAT return deadline (usually one month and 7 days after each period ends).
- Pay any VAT due using HMRC’s accepted payment methods.
This scheme allows you to submit accurate returns with fewer errors and keeps your VAT obligations up to date.
How to calculate how much VAT you owe?
Calculating your VAT liability is essential for accurate reporting and timely payments. If your taxable turnover exceeds the threshold and you’re VAT-registered, you must accurately determine the amount to report and pay for each period.
Understanding how to calculate VAT ensures you stay compliant, especially when trading services to the UK or dealing with international invoicing.
According to HMRC, what is the standard accounting scheme for VAT?
HMRC’s default option for businesses registered for VAT is the Standard Accounting Scheme, which is automatically applied unless you choose an alternative.
Under this scheme, you record VAT on the invoice date, not when payment is received, meaning you must account for VAT as soon as you raise an invoice, even if the customer hasn’t paid yet.
Businesses on this scheme typically submit quarterly VAT returns, tracking both input and output VAT. It’s ideal for companies with reliable cash flow and consistent invoicing, but requires accurate, up-to-date bookkeeping to avoid surprises.
How can Your Company Formation help with VAT registration and deregistration?
Your Company Formations provides comprehensive support for VAT registration and deregistration.
We can guide you through the registration process, ensuring it is completed accurately and efficiently. Additionally, our experts can offer tailored advice to help determine whether you need to register for VAT based on your turnover and other business dynamics.
Whether you’re starting or reconsidering your VAT status, we’re here to support your business needs.
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