When do I need to register for VAT?

VAT stands for value-added tax. It’s a tax charged on some goods and services. If you run a small business, you need to be aware of the VAT registration threshold to know when you need to register for VAT.

Key takeaways

• In April 2024, the UK VAT registration threshold increased from £85,000 to £90,000 

• You must register your business for VAT if your taxable turnover exceeds £90,000 in any 12-month period

• If you’re not sure whether you should register for VAT or how it could affect your business, use HMRC’s VAT Registration Estimator

• You can voluntarily register for VAT if your taxable turnover is less than £90,000

• If you don’t register for VAT when you should, you could face hefty penalties

What is the VAT registration threshold?

The VAT threshold is the amount of money you can earn before you need to register for VAT. If your business reaches or exceeds this limit, you must charge VAT on the products you sell and pay VAT when you buy goods and supplies for your business.

The standard rate of VAT is 20%, but a reduced rate of 5% applies to certain goods and services, including gas and electricity used in the home. A zero rate applies to items such as books, children’s clothes and most foods.

Current VAT thresholds

In the UK, the current VAT threshold is £90,000. This increased from £85,000 in April 2024.

If your taxable turnover exceeds this threshold in any 12-month period, you must register for VAT. Your taxable turnover is the total value of everything your business sells that’s not exempt from VAT. 

The VAT threshold is set on an annual basis. In the past, it increased each year. However, the VAT threshold remained unchanged from 2017 to 2024 before increasing for the 2024/25 tax year, as shown below:

• 2014-2015: £81,000

• 2015-2016: £82,000

• 2016-2017: £83,000

• 2017-2024: £85,000

• 2024/2025: £90,000

What happens once you meet the VAT threshold?

If your taxable turnover exceeds the £90,000 threshold in any 12-month period, you have 30 days to inform HMRC and register for VAT. You must also do this if you expect your taxable turnover to go over this limit within the next 30 days.

This 12-month period doesn’t need to be a tax year. It’s calculated on a rolling basis, so it could be January to December, or February to January, and so on. You should regularly check your accounts to ensure your income hasn’t exceeded this limit unexpectedly.

Once you’ve registered for VAT, you must:

• Charge VAT on products and services you sell to customers

• Pay VAT on goods and services you buy for your business

• Maintain a VAT account and records 

• Submit a VAT return to HMRC – usually on a quarterly basis

When you submit your VAT return, you pay HMRC the difference between the VAT you’ve charged your customers and the VAT you’ve paid. If you’ve paid more in VAT than you’ve received, you can claim back the difference. 

UK VAT-registered businesses must sign up to Making Tax Digital (MTD) and keep digital records. You can then use MTD-compatible accounting software, such as Xero, Sage or QuickBooks, to complete your VAT return and submit it online to HMRC. You could also hire an accountant or agent to do this on your behalf. 

Find out more:

• Legal requirements for sole traders

• Legal requirements for starting a business

What happens if you temporarily go over the VAT threshold?

If your annual turnover temporarily goes over the VAT threshold, but then falls back again, you may not need to register for VAT. Instead, you might be able to apply for an ‘exception’ for registration. 

However, to do this, you must request a VAT1 registration form and be able to prove to HMRC that your taxable income from sales is likely to remain below the deregistration threshold of £88,000 (or £90,000 in Northern Ireland) for the next 12 months. 

HMRC then considers your exception before writing to you to confirm if it’s been granted. If you don’t get it, HMRC automatically registers you for VAT.

Be aware that this only applies to businesses temporarily exceeding the threshold. If your taxable income is likely to remain above the threshold, and you’re simply late registering because you didn’t realise you had exceeded the VAT threshold, the situation is different. In this case, you must pay the VAT owed from the date you should have registered, and you might also get a penalty. 

It’s crucial that you tell HMRC as soon as possible and you must calculate the date your taxable turnover exceeded £90,000.

HMRC VAT tool 

If you’re not sure whether your business should register for VAT or how registering could affect your business, HMRC’s VAT Registration Estimator could help. It’s been developed to help small businesses understand when they might need to register, as well as how much VAT they can claim and how much they might need to pay. 

Before using it, it’s worth having the following information ready:

• Income you’ve received

• How much you paid for stocks and materials

• Overhead costs of running your business

• What rates of VAT your income and costs have

• The proportion of your income and costs that are exempt.

It can also be worth speaking to a tax advisor or accountant for further information and advice. 

Can you register for VAT with a lower turnover?

Yes, you can choose to voluntarily register for VAT even if your annual taxable turnover is less than £90,000. However, you should weigh up the pros and cons of being VAT registered first.

An advantage of registering is you can claim back the VAT you pay on items you buy for your business. This can be particularly beneficial if you buy large quantities of goods from suppliers that charge VAT. Another benefit of registering is your business can appear more credible and trustworthy to customers.

However, the downside is that registering involves more paperwork because you have to submit quarterly VAT returns. You must also charge VAT on your taxable goods, potentially making them more expensive than your competitors. 

It’s important to note that even if your taxable turnover is under the threshold, you must register for VAT if you live and run your business from outside the UK and supply any goods and services to the UK (or plan to in the next 30 days).

How to register for VAT

You can register for VAT online via GOV.UK. If you’re a limited company, you must provide:

• Your company registration number

• Your business bank account details

• Your Unique Taxpayer Reference (UTR)

• Details of your annual turnover 

If you’re registering as an individual or partnership, you need:

• Your National Insurance number

• A form of ID, such as a passport or driving licence

• Your bank account details

• Your UTR, if you have one

• Details of your annual turnover 

If you have one, you will also need your Government Gateway user ID and password. If you don’t have a Gateway ID, you must create one when you first sign in.

What happens if you don’t register for VAT? 

If you fail to register for VAT within 30 days of going over the VAT registration threshold, you could face hefty penalties. The amount of any fine will depend on how much VAT you owe and how late you register.

The minimum penalty is £50. 

If HMRC agrees you had a reasonable excuse for registering late, you may not need to pay the penalty. HMRC examines each case individually, but it might accept your reason if, for example, a close relative died around the time you should have registered or if you were seriously ill.

Note that failing to register for VAT can affect your business in other ways. Customers and suppliers can lose trust in your business, and you might face an HMRC investigation. 

VAT thresholds and accounting schemes

To help your business manage its VAT responsibilities more easily, there are several different accounting schemes you can use. You usually need to meet an annual turnover requirement to qualify.

Flat rate VAT scheme threshold

You can join the flat rate VAT scheme if you expect your taxable turnover to be £150,000 or less over the next 12 months. 

This scheme lets you pay HMRC a fixed percentage of your business turnover rather than calculating and reclaiming the VAT on every purchase and sale individually. This can make cash flow more predictable.

Note that you must leave the scheme to join another if, on the anniversary of your joining, your turnover in the past 12 months was more than £230,000 – or you expect it to be in the coming 12 months. 

VAT cash accounting scheme threshold 

To qualify for this scheme, your business turnover must be £1.35 million or less. You must leave the scheme once your taxable turnover exceeds £1.6 million. 

Usually, the VAT you pay is the difference between your sales and purchases invoices, and you must pay this amount to HMRC even if the invoices haven’t been paid. However, with the cash accounting scheme, you pay VAT on your sales when your customers pay you and reclaim VAT on your purchases when you have paid your supplier. 

Annual accounting scheme VAT threshold

To join this scheme, your estimated VAT-taxable turnover over the next 12 months must be £1.35 million or less. The scheme allows you to submit only one VAT return every year, rather than four, and make payments towards your bill in advance. 

Can you deregister from VAT?

If your taxable turnover falls below the deregistration threshold of £88,000 (previously £83,000), you may be able to deregister from VAT. The threshold is £90,000 in Northern Ireland. You can usually do this online through GOV.UK with your Government Gateway user ID and password.

You must cancel your VAT registration if you’ve stopped trading or you no longer make taxable goods and services, or if you join a VAT group. 

Once deregistered, you should receive confirmation from HMRC within three weeks.

This content is for informational purposes and it's not intended as financial or professional advice. Please talk to a qualified professional for guidance relating to your business' needs.