VAT Threshold UK 2025-26

What is the current VAT threshold?

The VAT registration threshold for 2025-26 is £90,000. This means if your business's taxable turnover exceeds £90,000 in any rolling 12-month period, you must register for VAT with HMRC.

This threshold has been frozen at £90,000 since April 2024. It previously stood at £85,000 from 2017 to 2024. The freeze means more businesses reach the threshold due to inflation and growth.

When must I register for VAT?

You must register if either:

1. Your taxable turnover in the last 12 months has exceeded £90,000, or
2. You expect your turnover in the next 30 days alone to exceed £90,000

The 12-month period is rolling. HMRC expects you to monitor this monthly. At the end of each month, look back over the previous 12 months. If the total exceeds £90,000, you must register within 30 days of that month-end.

Example: Your turnover for the 12 months ending 31 March 2026 totals £92,000. You exceeded the threshold on 31 March, so you must register by 30 April 2026.

What counts as taxable turnover?

Taxable turnover includes:

• Standard-rated sales (20% VAT)
• Reduced-rated sales (5% VAT)
• Zero-rated sales (0% VAT, like most food and children's clothes)

It does NOT include:

• Exempt sales (like insurance, education, health services)
• Out-of-scope sales (like wages paid to employees)

Count the value of sales excluding VAT. If you sell goods for £100 + £20 VAT, the turnover is £100, not £120.

Voluntary VAT registration

You can register for VAT even if your turnover is below £90,000. Reasons to do so:

• Reclaim input VAT: If you buy VAT-rated supplies, you can reclaim the VAT you pay.
• Credibility: Some B2B clients expect suppliers to be VAT-registered.
• Future-proofing: If you expect growth, registering early avoids a rushed application later.

Downsides:

• Admin burden: Quarterly VAT returns, record-keeping, potential penalties for errors.
• Price increase: If your customers are not VAT-registered (e.g., consumers), adding 20% VAT makes you less competitive.

Voluntary registration is common in sectors with high input costs (manufacturing, construction) where reclaiming VAT offsets admin costs.

VAT deregistration threshold

If your turnover falls and you expect it to stay below £88,000, you can apply to deregister. HMRC will ask:

• Why turnover fell (seasonal dip, or permanent change?)
• Whether you expect turnover to stay below £88,000 in the next 12 months

If approved, you stop charging VAT. However, you may owe VAT on assets you hold (stock, equipment) if you claimed input VAT on them. HMRC calls this a "deemed supply" adjustment. Deregistration is not always cost-free.

Penalties for late registration

If you exceed £90,000 and fail to register on time, HMRC will:

1. Backdate your VAT registration to the date you should have registered.
2. Charge you VAT on all sales made since that date, even if you didn't charge your customers.
3. Apply a penalty (typically 5-15% of the VAT due, depending on how late you are).

If you realise you've crossed the threshold, register immediately and tell HMRC. Voluntary disclosure reduces penalties.

How to register for VAT

Register online via the HMRC website. You'll need:

• Your business name, address, and type (sole trader, partnership, limited company)
• Your bank details
• Details of your turnover and the date you exceeded the threshold
• Your VAT scheme choice (standard, flat rate, cash accounting, etc.)

HMRC aims to process applications within 30 working days. You'll receive a VAT registration number, which must appear on all invoices.

VAT schemes for small businesses

HMRC offers simplified schemes:

• Flat Rate Scheme: Pay a fixed percentage of turnover instead of tracking input/output VAT. Available if turnover under £150k.
• Cash Accounting: Account for VAT when you receive payment, not when you invoice. Helps cash flow.
• Annual Accounting: File one VAT return per year instead of four. Advance payments spread cost.

Each has eligibility rules and trade-offs. Most businesses start on standard VAT accounting and switch later if beneficial.