VAT Threshold

The compulsory VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period (from 1 April 2024). Businesses must register within 30 days of exceeding the threshold and start charging VAT from the first day of the following month. The deregistration threshold is £88,000. Making Tax Digital (MTD) for VAT requires all VAT-registered businesses to keep digital records and submit returns using MTD-compatible software. VAT returns are typically filed quarterly, with payment due one month and seven days after the period end. The Flat Rate Scheme is available to businesses with taxable turnover up to £150,000, simplifying accounting by applying a fixed percentage to gross turnover. Businesses making only exempt supplies (such as most financial services or residential lettings) cannot register for VAT and cannot recover input tax.

In practice, the trap is the rolling nature of the test. It is not your accounting year or your tax year — you must look back at the last twelve months at the end of every month, and you must also look forward: if you expect to exceed the threshold in the next 30 days alone (for example because you have just won a large contract), you must register immediately and charge VAT from the date you formed that expectation.

Worked example: Leila runs a mobile beauty business. Her rolling twelve-month turnover reaches £91,000 at the end of September. She must notify HMRC within 30 days of the end of that month and starts charging VAT from 1 November. Because most of her customers are consumers who cannot reclaim VAT, adding 20% would price her out, so she considers whether to absorb the cost. She also checks whether the Flat Rate Scheme suits her, since her input costs are low, and she reviews whether she can trim her turnover below the threshold rather than crossing it.

Common misconceptions are costly. The threshold applies to taxable turnover, not profit, and not to exempt or outside-the-scope income. Registering late does not excuse you from the VAT you should have charged — HMRC will assess it as if it were included in the prices you already invoiced, so the tax comes out of your margin. Voluntary registration is not always a good idea for consumer-facing businesses, though it usually is for those selling to VAT-registered customers or making zero-rated supplies. And Making Tax Digital obligations apply to every VAT-registered business, so paper records or a spreadsheet without bridging software will not comply.

VAT sits alongside Corporation Tax (or self assessment if you are a sole trader), PAYE for staff, and the confirmation statement if you trade through a company. If you are approaching the threshold, read our guide to VAT registration and then VAT schemes to see whether flat rate, cash accounting or annual accounting would reduce the administrative load.