There is one number every growing UK small business needs to keep in mind: £90,000. That is the UK VAT registration threshold, and once your taxable turnover crosses it in any rolling 12-month period, registering for VAT with HMRC stops being a choice and becomes a legal duty. The threshold is not tied to your tax year or your last set of accounts, so it can be crossed in any month.
What Is the VAT Registration Threshold?
The VAT registration threshold is the level of taxable turnover at which a UK business must register for VAT. For 2026/27 it is £90,000, unchanged since 1 April 2024, when it rose from £85,000. The Autumn Budget 2026 confirmed it stays at £90,000 from 1 April 2027, and the deregistration threshold, below which you can ask HMRC to cancel your registration, is £88,000.
Three points catch small businesses out. First, the threshold is measured on taxable turnover, not profit: a business with £95,000 of taxable sales and only £15,000 of profit must still register. Second, it applies the same way to sole traders, partnerships and limited companies, and a sole trader with more than one business adds the turnover of all of them together. Third, it is a rolling test, checked at the end of every month.
| Rule | 2026/27 figure |
|---|---|
| Registration threshold | £90,000 taxable turnover, rolling 12 months |
| Forward-looking test | Over £90,000 expected in the next 30 days |
| Deadline, 12-month test | 30 days from the end of the month you went over |
| Deadline, 30-day test | The end of that 30-day period |
| Deregistration threshold | £88,000 |
| Standard VAT rate | 20% (reduced 5%, zero 0%) |
The Two Tests That Trigger Registration
HMRC applies two separate tests, and either one can make registration compulsory. The second is the one that causes sudden problems, because a single large contract can trigger it overnight.
The 12-month rolling test (looking back)
At the end of every month, add up your taxable turnover for the previous 12 months. If the total is over £90,000, you must register within 30 days of the end of that month, and your registration takes effect from the first day of the second month after you went over. For example, a design studio whose rolling total reaches £91,300 at 31 October 2026 must register by 30 November and charges VAT from 1 December 2026.
The 30-day forward test (looking ahead)
If at any point you expect your taxable turnover in the next 30 days alone to go over £90,000, you must register by the end of that 30-day period. This usually follows one very large order or contract, and your registration takes effect from the date you realised you would go over, not the date you invoice or get paid. A firm that signs a £100,000 contract on 1 December must register by 30 December, and VAT applies to the whole contract from 1 December.
What Counts Towards the £90,000?
The word “taxable” does a lot of work here. Taxable turnover includes standard-rated sales at 20%, reduced-rated sales at 5% and zero-rated sales at 0%. That last one surprises people: a bookshop with £95,000 of zero-rated sales has gone over the threshold even though its sales carry no VAT.
- Standard, reduced and zero-rated sales all count, as do goods you hire or loan, goods you barter or give away, and services from overseas businesses that you have to reverse charge.
- VAT-exempt sales do not count: insurance, financial services, most residential property rent, and healthcare.
- Sales outside the scope of VAT do not count, such as statutory fees, and sales of capital assets such as an old van generally do not count either.
- Count the full value of your sales before costs or fees. On Amazon, eBay or Etsy, that means the prices customers paid, not the payout after fees.
Going over £90,000 does not always mean you must register. If a one-off spike took you over on the 12-month test, you can apply to HMRC for an exception from registration, but you must show that your taxable turnover in the next 12 months will not go over £88,000. The exception is not available under the 30-day test.
Should You Register Voluntarily Below the Threshold?
Below £90,000, registration is your choice, and it is not automatically good or bad. It usually makes sense where most of your customers are VAT-registered businesses that can reclaim the VAT you charge, where you buy expensive equipment or stock and have meaningful input VAT to reclaim, or where you are close to the threshold and growing steadily.
It is usually a bad idea where most of your customers are consumers who simply absorb a 20% price rise, where your prices are fixed, or where margins are already thin. Take a consultant charging £100 an hour. Selling to a VAT-registered company, she adds 20% and invoices £120, and the client reclaims the £20. Selling to a consumer, the same £100 becomes £120 out of the customer’s pocket. If she absorbs the VAT instead, the £100 stays £100 but only £83.33 of it is her revenue. That single decision, who pays the 20%, is the heart of the question.
The Flat Rate Scheme: Simpler, But Check the Maths
Once you are VAT registered, you can choose how to account for VAT. The Flat Rate Scheme is the simpler option: instead of working out VAT charged minus VAT paid on every transaction, you pay HMRC a fixed percentage of your VAT-inclusive turnover, set by HMRC for your sector. You can join if you expect VAT taxable turnover of £150,000 or less, excluding VAT, and you must leave if turnover goes over £230,000 including VAT.
There is a trap, and it catches most low-cost service businesses. If you spend little on goods, HMRC classes you as a “limited cost business” and you must use a flat rate of 16.5%, whatever your trade. You are a limited cost business if your spending on relevant goods is less than 2% of your turnover, or more than 2% but less than £1,000 a year. Services and capital items such as a laptop do not count as goods. At 16.5% most of the benefit disappears, and under the scheme you give up reclaiming input VAT except on capital assets over £2,000. New registrations do get a 1% discount on their flat rate for the first year.
What Changes Once You Are Registered
Registration is not just a tax form; it is a business process change. From your effective date you must charge VAT on taxable sales, show your VAT number on every invoice, keep digital VAT records, and file VAT returns through Making Tax Digital for VAT, mandatory for all VAT-registered businesses since April 2022. Returns are normally quarterly, due one calendar month and seven days after the period ends.
Late returns now work on penalty points rather than an instant fine. Each late return earns one point, and a quarterly filer pays £200 when it reaches four points, then £200 for each further late return. Late payment is separate: no penalty if you pay within 15 days of the deadline, then 3% of the balance at day 15, a further 3% from day 31, and 10% a year until you pay. Tracking the right cash-flow KPIs keeps deadlines visible before they become penalties. At registration you can also usually reclaim VAT on goods bought up to four years before that you still hold, and on services bought up to six months before. Claim it in your first return.
What Happens If You Register Late?
Late registration is painful because VAT can become due on sales already made. If HMRC decides you should have registered earlier, you owe VAT from the date you should have been registered, whether or not you added it to your invoices. If customers cannot be re-invoiced, that VAT comes out of your margin: on £12,000 of sales, the VAT element at 20% is £2,000, leaving only £10,000 before costs.
HMRC can also charge a “failure to notify” penalty under Finance Act 2008, Schedule 41: up to 30% of the VAT owed for a careless failure, up to 70% where it was deliberate but not concealed, and up to 100% where it was deliberate and concealed. An unprompted disclosure within 12 months can bring a careless penalty down to zero, so tell HMRC and your accountant early.
Deregistration: The £88,000 Threshold
VAT registration is not always permanent. If your taxable turnover falls below the £88,000 deregistration threshold and you expect it to stay there, you can apply to HMRC to cancel your registration. It is not automatic, and it is not always the right move: if your customers are VAT registered, or you expect turnover to rise again, staying registered may be better. Deregistering is also not cost-free: if the output VAT due on assets and stock you still hold exceeds £1,000, you must account for it on your final return. Our guide to corporation tax marginal relief explains the rates that apply to limited company profits alongside VAT.
Related reading
If you run a limited company, read our guide to corporation tax marginal relief for small companies. For the cash-flow side of VAT, see our guides to cash-flow KPIs and improving your cash flow. And if you are a sole trader, our guide to Making Tax Digital for Income Tax explains the quarterly updates that now run alongside your VAT returns. This article is general information, not tax advice.