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What the threshold really means
The key word is rolling. It is not your turnover for the tax year or your accounting year, but for any 12 months in a row. At the end of each month you look back over the last 12 months. The moment that total passes £90,000, the clock starts.
The two tests, step by step
- The backward look. At the end of each month, add up taxable turnover for the previous 12 months. If it is over £90,000, you must register within 30 days.
- The forward look. If at any point you expect turnover to exceed £90,000 in the next 30 days alone, you must register immediately.
- Leaving VAT. If your turnover falls below the £88,000 deregistration threshold, you can apply to leave.
Why registering late hurts
If you cross the threshold and do not register, HMRC still treats your later sales as VAT inclusive. You end up owing VAT you never charged your customers, plus possible penalties. Watching the rolling figure is far cheaper than catching up.
The numbers, and what they are measured on
The VAT registration threshold is £90,000 and the deregistration threshold is £88,000. Both have applied since 1 April 2024, when they rose from £85,000 and £83,000 after seven years frozen.
What is measured is taxable turnover: your sales of goods and services that are standard rated, reduced rated or zero rated. Zero rated sales count towards the threshold even though the VAT on them is nil, which surprises people in food, books and children's clothing. What does not count is genuinely exempt income such as most insurance, finance, and certain property and education supplies, and anything outside the scope of UK VAT.
The two tests, and their different clocks
The backward look. Add up taxable turnover for the last 12 months. Do it at the end of every month, not at your year end. If the total passes £90,000, you must register within 30 days of the end of that month, and you are registered from the first day of the second month after you crossed.
Cross the line on 15 July: register by 30 August, registered from 1 September.
The forward look. If at any point you expect taxable turnover to exceed £90,000 in the next 30 days on its own, you must register by the end of that 30 day period, and you are registered from the day you realised, not the day the money comes in.
Win a £100,000 contract on 1 May payable by month end: apply by 30 May, registered from 1 May.
The forward look catches people because the effective date is earlier than they expect. Under the backward look you get roughly six weeks of breathing space. Under the forward look you get none.
Why late registration is so expensive
Your VAT liability starts on your effective date of registration, not on the date HMRC processes the form. Every standard rated sale made from that date carries VAT whether or not you charged it.
If you registered four months late, you owe one sixth of every gross sale made in that period. You can ask customers to accept a VAT only invoice, and VAT registered customers usually will because they reclaim it. Members of the public generally will not. That difference is why late registration is survivable for a business to business supplier and painful for one selling to consumers.
Failure to notify also carries a penalty based on the tax involved, reduced substantially if you come forward before HMRC contacts you.
What you get back
Registration is not one way. From your effective date you reclaim VAT on costs, and there are rules that let you go back further: 4 years for goods still on hand, such as stock and equipment you still own and use, and 6 months for services.
For a business that has recently bought vans, tools, computers or stock, that backdated claim can be worth several thousand pounds and is regularly forgotten on the first return.
Voluntary registration, which is sometimes the better move
You can register before you have to. It makes sense when your customers are mostly VAT registered businesses who reclaim whatever you charge, when you have significant VAT on costs, or when you would rather not have the threshold hanging over your pricing decisions.
It makes no sense when you sell to the public, because you either absorb the 20% or raise your prices by it.
Staying under the line on purpose
Plenty of businesses do it deliberately, closing for part of the year or turning work away. That is legal. What is not legal is artificial separation, splitting one business into two to keep each under the threshold. HMRC can and does issue a direction treating connected businesses as one, backdated, and the bill lands with the penalties attached.
Coming back out
You can deregister voluntarily when taxable turnover falls below £88,000, and you must deregister within 30 days if you stop making taxable supplies. Remember there is a final VAT charge on stock and assets you still hold, so it is not always the saving it looks like.
Getting close to £90,000?
The rolling test catches people out. TaxTune watches your turnover, tells you when registration is coming, and handles it at the right moment on the best scheme for you.
Never miss the moment to register
We monitor your turnover, register you on time, choose the right scheme and file your returns. Fixed monthly fee.
Frequently asked questions
What is the VAT registration threshold?
It is £90,000 of taxable turnover in any rolling 12 month period. Once you cross it, or expect to within the next 30 days, you must register for VAT.
Is the threshold based on the tax year?
No. It is a rolling 12 month figure. At the end of each month you look back at the previous 12 months, not the tax year or your accounting year.
What is the deregistration threshold?
It is £88,000. If your taxable turnover falls below this, you can apply to HMRC to cancel your VAT registration.
What counts toward the threshold?
Your taxable turnover, which is standard, reduced and zero rated sales. It excludes VAT exempt income and sales outside the scope of UK VAT.
What happens if I cross the threshold and do not register?
HMRC treats your later sales as including VAT, so you owe VAT you may not have charged, plus possible penalties. Monitoring the rolling figure avoids this.