Approaching the £90,000 VAT Threshold: What UK Small Businesses Should Do Before They Cross It

If your turnover has been creeping up nicely over the last year, congratulations. That is the sort of problem most business owners want to have. There is a slightly less fun side to growth though, and it tends to land on the desk of accountants like me with surprising regularity. It is called the VAT registration threshold, and at the moment it sits at £90,000.

Crossing that figure changes the way you invoice, the way you record your numbers, the way you price your services, and sometimes the way your customers feel about you. So if you can see it coming on the horizon, it pays to know exactly what is required of you, what your options are, and where the common pitfalls hide.

This post is written for UK sole traders, partnerships and limited companies who are either close to the threshold now or expect to be within the next year or two.

What the threshold actually is

For the 2026/27 tax year the VAT registration threshold is £90,000 of taxable turnover. The deregistration threshold sits a touch lower at £88,000. Those figures have been in place since 1 April 2024 and are confirmed on gov.uk.

The word “taxable” is doing a lot of heavy lifting in that sentence. Your taxable turnover is the total of everything you sell that is not VAT exempt or out of scope. That includes standard rated sales, zero rated sales, reduced rated sales, the value of goods you used personally from the business, goods you bartered or gave away, and certain services you bought in from overseas where reverse charge VAT applies. It also includes building work over £100,000 that you carried out for your own business.

It does not include exempt income such as most insurance, certain education services, and the rent on most residential property. If you only ever sell exempt items, you do not need to register at all.

Two tests, one threshold

This is the bit that catches a lot of people out, so it is worth slowing down on. There are actually two ways you can be required to register.

The first is the rolling twelve month test. At the end of every month you look back over the previous twelve months and add up your taxable turnover. The moment that figure goes over £90,000, you have thirty days from the end of that month to apply for VAT registration. Your effective date of registration is then the first day of the second month after you crossed the line.

A worked example helps. Say your rolling twelve months to 15 July hit £100,000 for the first time. You must register by 30 August. Your effective date of registration is 1 September, and from that date you charge VAT on what you sell.

The second test is the forward looking thirty day test. If at any point you realise that your taxable turnover is going to exceed £90,000 in the next thirty days alone (for instance because you sign a single large contract), you must register by the end of that thirty day period. Crucially, your effective date of registration is the date you realised, not the date the money actually arrives.

That second test trips up consultants, contractors and trades people who win a chunky one off job and assume they can defer registration until they invoice. They cannot.

What changes the day you become VAT registered

From your effective date of registration, three things happen.

You start charging VAT on your sales. For most businesses that is 20% added to the price. You also start reclaiming VAT on most of your business purchases, which is the silver lining.

You take on the responsibility of filing VAT returns through Making Tax Digital compatible software. For most businesses that means quarterly returns, although some opt for the Annual Accounting Scheme which lets you file once a year with payments on account.

You may also need to think about pre registration VAT. You can usually reclaim VAT on goods bought in the four years before registration that you still have on the date of registration, and VAT on services bought in the six months before registration. Done properly, this can put a meaningful chunk of cash back into the business in your first return.

The pricing question nobody wants to think about

Here is the bit that keeps owner managed businesses awake at night. If most of your customers are VAT registered businesses themselves, registering for VAT is largely a paperwork exercise. Your prices stay the same, your customers reclaim the VAT you charge, and life goes on.

If most of your customers are members of the public, or small businesses below the VAT threshold, the picture is very different. Your prices effectively rise by 20% overnight unless you absorb the cost yourself. A hairdresser charging £30 for a cut now has to invoice £36, or take a £5 hit on the margin to keep the headline price the same. That is a serious conversation to have before you cross the line, not after.

Schemes worth knowing about

There are a few accounting schemes designed to make life simpler once you are registered.

The Flat Rate Scheme lets businesses with taxable turnover of £150,000 or less pay a fixed percentage of their gross sales as VAT, rather than calculating input and output tax line by line. You stay on the scheme until your turnover exceeds £230,000. It can be very useful for service businesses with low costs, although the limited cost trader rules introduced a higher 16.5% rate that knocks out a lot of the benefit if you do not buy enough goods.

The Cash Accounting Scheme lets you pay VAT only when your customer actually pays you, rather than when you raise an invoice. Helpful if your debtors are slow. You can join up to £1.35 million of turnover and stay on it until you reach £1.6 million.

The Annual Accounting Scheme lets you file just one return per year, with regular payments on account. Joining and leaving thresholds are the same as Cash Accounting.

It is worth running the numbers on each of these before you settle on one. The right choice depends on your customer base, your typical cost profile, and how much admin you are willing to take on.

Pushed over by a one off spike? You may have options

If your turnover went over £90,000 only because of a one off event that you do not expect to repeat, you can apply for an exception from registration. HMRC will look at the circumstances and either confirm the exception or register you anyway. It is worth a try where it genuinely applies, but do not bank on it.

Voluntary registration

You are also allowed to register before you have to. This is called voluntary registration. It can make sense if you sell mainly to other VAT registered businesses, because you can then reclaim VAT on your own costs without putting your prices up for your customers. It can also help your professional credibility on larger contracts. The flip side is the additional admin and a slight cash flow drag from holding VAT before you pay it over to HMRC.

The most common mistakes I see

A few patterns crop up year after year.

The first is leaving the rolling twelve month check until the end of the financial year. By then you may already be three or four months late, which means HMRC can come after you for the VAT you should have charged plus penalties.

The second is treating gross sales and taxable turnover as the same thing. They often are, but not always. If you sell a mixture of exempt and standard rated work, you need to be careful.

The third is ignoring a deliberate strategy decision. Some businesses comfortably trade just below the threshold for years because the 20% jump in prices to consumers is not worth the small uplift in revenue. That is a perfectly valid commercial choice, but it has to be a choice rather than an accident.

The fourth is doing nothing about pricing or contracts until the registration is already in place. Renegotiating with customers after you have already raised your prices is much harder than warning them in advance.

What to do this week if you think you are getting close

Pull together the last twelve months of taxable sales and check the figure. Then forecast the next six months as best you can. If you can see the threshold approaching within the next year, start the planning now. That means looking at pricing, looking at scheme selection, getting MTD compatible software in place, and talking to whoever does your bookkeeping so that nothing slips through the cracks.

If you would like a second pair of eyes on any of this, that is exactly the sort of work we do at YF Accounting. A short call now can save a much longer one with HMRC later.

The information in this post reflects HMRC guidance current at the time of writing in May 2026 and is general in nature rather than tailored advice. Always check the latest position on gov.uk or speak to a qualified adviser before you act.