Do I Need to Register for VAT?

Businesses do not normally need to register for VAT from day one.

However, VAT registration becomes compulsory when certain conditions are met. There are also circumstances where a business may choose to register voluntarily before reaching the compulsory registration threshold.

One of the most important things to understand is that the VAT threshold is generally based on taxable turnover rather than profit, and the main historic test uses a rolling 12-month period rather than your accounting year or the tax year.

What is the VAT registration threshold?

For 2026/27, the UK VAT registration threshold is £90,000 of taxable turnover.

Broadly, you must register if either:

• Your total taxable turnover for the previous 12 months goes over £90,000
• You expect your taxable turnover to go over £90,000 in the next 30 days alone

These are two separate tests and it is important to understand the difference between them.

Important

The VAT threshold is based on taxable turnover, not profit. Business expenses do not simply reduce your turnover when determining whether you have crossed the VAT registration threshold.

What counts as taxable turnover?

Taxable turnover is broadly the total value of the supplies you make that are not exempt from VAT or outside the scope of VAT.

For the registration threshold, this can include:

• Standard-rated supplies
• Reduced-rated supplies
• Zero-rated supplies
• Certain other supplies that fall within the VAT rules

Exempt supplies generally do not form part of taxable turnover for this purpose.

The sale of capital assets such as equipment, vehicles or buildings used by the business is also generally excluded when calculating taxable turnover for registration purposes, although there are exceptions. For example, particular rules can apply to land or buildings where an option to tax is involved.

Does zero-rated income count towards the VAT threshold?

Yes.

This is an important distinction because zero-rated and exempt supplies are not the same thing.

Zero-rated supplies are still taxable supplies. VAT is charged at 0%, but the value of those supplies normally counts towards taxable turnover for the VAT registration threshold.

Exempt supplies generally do not count towards taxable turnover for this purpose.

Important

Zero-rated does not mean exempt. Zero-rated sales are still taxable supplies and normally count towards your VAT registration threshold, even though VAT is charged at 0%.

How does the rolling 12-month VAT test work?

The £90,000 historic threshold is not normally tested by looking at:

• Your accounting year
• The tax year
• The calendar year

Instead, you need to monitor taxable turnover over the previous 12 months on a rolling basis.

At the end of each month, you should consider whether your taxable turnover during the previous 12 months has exceeded £90,000.

If you first exceed the threshold during a month, you generally need to notify HMRC within 30 days of the end of that month.

Your normal effective date of VAT registration is then the first day of the second month after you exceeded the threshold.

Example

Suppose your taxable turnover for the previous 12 months first goes above £90,000 on 22 April.

This means a business needs to monitor turnover regularly. Waiting until the year-end accounts are prepared can be too late.

What is the 30-day forward-looking test?

There is a separate VAT registration test where you expect your taxable turnover to exceed £90,000 in the next 30 days alone.

This is not a forecast of turnover for the next 12 months.

For example, a business might agree a particularly large contract which means it expects more than £90,000 of taxable supplies during a single 30-day period.

Where this test applies, you generally need to register by the end of that 30-day period and the effective registration date is normally the date you first realised that the threshold would be exceeded.

Important

The forward-looking test concerns the next 30 days alone. It is different from simply expecting your annual turnover to exceed £90,000 at some point during the next year.

What if I only temporarily exceed £90,000?

There is a potential exception where the historic VAT registration threshold has been exceeded only temporarily.

You can apply to HMRC for exception from registration if you can demonstrate that your taxable supplies will not exceed the VAT deregistration threshold during the following 12 months.

For 2026/27, the deregistration threshold is £88,000.

This is not automatic. An application needs to be made to HMRC and HMRC must agree that the conditions are satisfied.

If exception is granted, the business must continue monitoring its taxable turnover because a later VAT registration liability can still arise.

The exception does not apply in the same way to a liability arising under the forward-looking 30-day test.

Can I register for VAT voluntarily?

Yes.

A business can potentially register for VAT voluntarily even where taxable turnover is below £90,000.

Whether voluntary registration is worthwhile depends on the circumstances.

Potential reasons for registering voluntarily can include:

• Being able to reclaim VAT on qualifying business purchases
• Dealing mainly with VAT-registered business customers
• Expecting to exceed the compulsory threshold in the near future
• Wanting VAT systems and pricing in place before registration becomes compulsory

However, voluntary registration also brings additional responsibilities and may affect pricing.

This can be particularly important for businesses selling mainly to consumers or other customers who cannot recover VAT.

Will registering for VAT make my prices 20% higher?

Not necessarily.

The commercial effect depends on what you sell, the applicable VAT rate, your existing pricing and the type of customers you deal with.

The standard rate of VAT is currently 20%, but some supplies are reduced-rated, zero-rated or exempt.

For a business selling standard-rated services primarily to VAT-registered businesses, customers may be able to recover the VAT charged, subject to their own VAT position.

The position can be very different for a business selling directly to consumers.

For example, if a standard-rated business currently charges a consumer £100 and wants to continue receiving £100 before VAT, the VAT-inclusive price would normally become £120.

If the market will only support a £100 VAT-inclusive selling price, part of that £100 will instead represent VAT.

This is why the effect of VAT registration on pricing should be considered before the registration date rather than afterwards.

Can I reclaim VAT from before I registered?

Potentially.

Subject to the relevant conditions, a newly VAT-registered business may be able to reclaim VAT incurred before its registration date.

Broadly, this can include:

• Qualifying goods bought up to 4 years before registration, where the relevant conditions are met and the goods are still held or were used to make other goods still held
• Qualifying services received up to 6 months before registration

The purchases must relate to the business that is now VAT registered and the normal rules for recovering input VAT still apply.

Appropriate evidence, including valid VAT invoices where required, should be retained.

Important

Pre-registration VAT recovery is not simply a blanket claim for every purchase made during the previous four years. Different time limits apply to goods and services and the normal conditions for input VAT recovery still need to be satisfied.

What happens after I register for VAT?

Once registered, a business will generally need to:

• Charge the appropriate rate of VAT on taxable supplies
• Issue appropriate VAT invoices
• Keep suitable VAT records
• Record output VAT charged to customers
• Record eligible input VAT on business purchases
• Submit VAT returns
• Pay VAT due to HMRC
• Comply with Making Tax Digital for VAT requirements unless an exemption applies

Newly registered businesses are generally brought within Making Tax Digital for VAT and need to keep the required records digitally using compatible software, unless exempt.

Are there different VAT accounting schemes?

Yes.

Depending on the circumstances, a VAT-registered business may be able to use schemes such as:

• Cash Accounting Scheme
• Annual Accounting Scheme
• Flat Rate Scheme

These schemes have their own eligibility conditions, advantages and disadvantages.

Choosing a VAT scheme should be based on the circumstances of the business rather than assuming that a particular scheme will always reduce the VAT payable.

What if my turnover falls after I register?

VAT registration does not automatically end because your turnover subsequently falls below £90,000.

For 2026/27, the VAT deregistration threshold is £88,000.

A VAT-registered business whose taxable turnover falls below the relevant deregistration threshold may be able to apply to HMRC to cancel its registration, subject to the relevant conditions.

There are also circumstances where VAT registration must be cancelled, for example where a business stops making taxable supplies.

What happens if I register late?

Late VAT registration can be expensive.

If a business should have registered earlier, HMRC can register it from the date on which it should have become VAT registered.

VAT can then be due on taxable sales made from that date, even if the business did not add VAT to the prices charged to its customers at the time.

Penalties may also arise depending on the circumstances.

Important

Not charging VAT does not prevent a VAT liability arising. If you should have registered earlier, VAT can still be due from the correct registration date even though you did not add VAT to the prices originally charged to your customers.

This is one reason businesses approaching the VAT threshold should monitor turnover regularly rather than waiting for their annual accounts to identify whether registration was required.

How can Baldwin’s Accountancy Services help?

We can help businesses monitor the VAT registration threshold, determine when registration is required and complete the VAT registration process.

We can also help consider whether voluntary registration is appropriate, review VAT schemes where relevant and provide ongoing bookkeeping and VAT return support once the business is registered.