What is the VAT threshold?

The VAT registration threshold is the point at which a business becomes legally required to register for VAT. From 1 April 2024, the threshold is £90,000 of taxable turnover in any rolling 12-month period.

If your turnover has been below this for a while, it is easy to assume VAT is not something you need to think about. But the threshold is not a static annual figure - it is measured over the previous 12 months, which means a sudden jump in takings (a big contract, a strong quarter, seasonal peaks) can push you over without you realising.

When registration becomes compulsory

You must register for VAT if, at the end of any month, your taxable turnover over the previous 12 months has gone over £90,000. You then have 30 days to notify HMRC, and your registration will be backdated to the first day of the month after you crossed the threshold.

This is a detail that catches many businesses out. Crossing the limit in, say, August does not mean you wait until January. The clock starts immediately, and failing to register on time leads to backdated VAT owed and potential penalties.

There is also a forward-looking rule: if you have reasonable grounds to believe your turnover will exceed £90,000 in the next 30 days alone, you must register from the date you expect to go over.

What counts toward the threshold

Most of your business income counts as taxable turnover - sales of goods and services that are not VAT-exempt. Some items are excluded, such as sales of capital assets (equipment, vehicles) and certain exempt supplies like insurance or financial services. If your business has mixed income, it is worth checking which elements count, because the calculation is not always as simple as "total sales".

Voluntary registration below the threshold

You can choose to register for VAT voluntarily even if you are below the threshold. For some businesses this makes sense - particularly those that sell to other VAT-registered businesses, who can usually reclaim the VAT you charge. Voluntary registration can also lend credibility and allow you to reclaim VAT on your own purchases and start-up costs.

The downside is the admin: you must file regular returns, keep VAT-compliant records, and the VAT you charge can make your prices less competitive if your customers are not VAT-registered themselves.

Schemes that make VAT easier

HMRC offers several schemes to simplify VAT once you are registered:

  • Flat Rate Scheme - you pay a fixed percentage of your turnover as VAT, with less detailed record-keeping.
  • Cash Accounting Scheme - you account for VAT when you are actually paid, rather than when you issue an invoice.
  • Annual Accounting Scheme - one return a year with interim payments.

Not every scheme suits every business, and eligibility depends on your turnover and circumstances.

Crossing the threshold - what to do

If you think you are approaching or have crossed £90,000, the most important step is to act quickly. Start monitoring your rolling 12-month turnover now, keep clear records, and speak to your accountant before the 30-day window closes. Registering late is one of the most common - and most avoidable - VAT mistakes small businesses make.