VAT Threshold Checker

The short answer

• You must register if taxable turnover in the last 12 months goes over £90,000.
• You must also register straight away if you expect over £90,000 in the next 30 days alone.
• Register within 30 days of the end of the month you went over; you are registered from the first day of the month after that.
• You can deregister if turnover falls below £88,000.

What counts as taxable turnover

Taxable turnover is the total value of everything you sell that is not exempt from VAT: standard-rated, reduced-rated and zero-rated sales all count. It is your sales, not your profit. Exempt sales, such as most insurance, finance, education and residential rents, do not count, and nor do sales of capital assets such as old equipment. If you run more than one business as a sole trader, their turnover is added together.

The rolling 12-month test

At the end of every month, add up your taxable turnover for that month and the previous 11. If the total is over £90,000, you must register. It is not based on the tax year or your accounting year, so a business can cross the threshold in any month. As each month passes, the oldest month drops out of the total and the newest one comes in: a busy month replacing a quiet one can push you over.

The 30-day forward-look test

You must also register if, at any point, you expect your taxable turnover in the next 30 days alone to be over £90,000, for example because you have won a large contract. In that case you register by the end of those 30 days, and you are registered from the start of the 30-day period, so VAT is due on the big sale itself.

Worked examples

Registration deadlines

1. End of the month you go overYou become liable

   Work out the rolling total at each month end.

2. Within 30 daysRegister with HMRC

   Online, through your business tax account.

3. First day of the second monthRegistration takes effect

   Charge VAT on sales from this date.

4. After registeringFirst VAT return

   Usually quarterly, filed through Making Tax Digital software.

While you wait for your VAT number, you cannot show VAT on invoices, but you should raise prices to include it and reissue invoices once your number arrives.

What registering costs your business

Whether VAT costs you anything depends on your customers. Businesses that are VAT registered can reclaim the VAT you charge, so you can usually add it to their prices. Consumers cannot, so if you keep the same prices, a sixth of what they pay goes to HMRC. On £91,000 of sales to consumers that is £15,167, less the VAT you reclaim on costs: £2,000 on £12,000 of costs, leaving £13,167 a year. That is why the threshold matters so much to hairdressers, trades and other consumer-facing businesses.

Registering voluntarily

You can register even if your turnover is below the threshold. It can make sense if most of your customers are VAT-registered businesses, or if you have large costs with VAT, such as equipment or stock, as you can reclaim the VAT on them. It can also make a small business look more established. The downside is the extra admin and, for consumer sales, higher prices.

VAT schemes for small businesses

There is also an Annual Accounting Scheme, with one return a year and fixed payments on account. See the Flat Rate VAT calculator.

Staying under the threshold

Some sole traders deliberately limit their work to stay under £90,000. That is legal, but splitting one business artificially between family members or companies to keep each under the threshold is not: HMRC can treat them as one business. Track your rolling total every month so that the threshold never surprises you; the calculator’s next-month check shows when you are getting close.

If you register late

HMRC backdates your registration to when it should have started. You then owe VAT on all sales since that date, even though you did not charge your customers for it, and a late registration penalty based on the VAT due and how late you are. If you realise you have gone over, register straight away: penalties are lower if you tell HMRC before it finds out.

Making Tax Digital for VAT

All VAT-registered businesses must keep digital records and file VAT returns using software that works with Making Tax Digital. Choose your software before you register, so your first return is straightforward.

Deregistering

If your taxable turnover for the next 12 months is expected to be £88,000 or less, you can ask to deregister. You may need to pay VAT on stock and assets you still hold on which you reclaimed VAT, if the VAT due is over £1,000.

Temporary rises: the exception

If you go over £90,000 because of a one-off, such as a single large order, and you expect turnover in the next 12 months to be £88,000 or less, you can ask HMRC for an exception from registering. You must still tell HMRC and give evidence, and it decides whether to grant it.

Raising your prices when you register

When you register, you decide whether to add VAT to your prices or absorb it. For business customers, adding 20% is normal: they reclaim it on their own VAT return, so their real cost does not change. For consumers, adding 20% is a visible price rise, so many businesses split the difference, raising prices a little and absorbing the rest. Work out the effect on your margin before deciding. If a £100 job becomes £120 with VAT, or stays at £100 including VAT, your income falls to £83.33. See the VAT calculator to work out prices with and without VAT.

Reclaiming VAT on costs and past purchases

Once registered, you can reclaim the VAT you pay on business costs, such as equipment, stock, software and professional fees, as long as you have a valid VAT invoice. You can also reclaim VAT on goods you bought up to four years before registration that you still have, such as a van or computer, and on services bought up to six months before. For businesses with large costs, this input VAT can offset much of the VAT on sales.

Tracking your rolling total

The simplest way to stay on top of the threshold is a monthly spreadsheet or your accounting software’s report showing taxable sales for each month and the total of the last 12. Add each new month and remove the one from 12 months ago. Most accounting packages can show this automatically. Set yourself a warning level, such as £80,000, so you have time to plan prices and choose software before you have to register.

Sole traders, partnerships and companies

The threshold applies to the business, not the person. A sole trader’s different activities count together, because the person is the business. A partnership or limited company is a separate business with its own threshold. A sole trader who also has a share in a partnership therefore has two separate turnovers. Where HMRC thinks a business has been split artificially to stay under the threshold, it can direct that the parts be registered together.

Selling online and abroad

Exports of goods to customers outside the UK are usually zero-rated but still count towards your taxable turnover. Services to overseas business customers are often outside the scope of UK VAT and do not count. Businesses based outside the UK that sell to UK consumers must register with no threshold at all. Online marketplace sellers should check whether the marketplace is responsible for the VAT on their sales.

After you register

Once registered, you get a VAT number, which must appear on every invoice. Each invoice must show your business name and address, the invoice date and number, a description of what you supplied, the price before VAT, the VAT rate and the VAT amount. Most businesses file returns every quarter, due one month and seven days after the end of the period, and pay at the same time. Set aside the VAT you collect in a separate account, because it is not your money.

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