The VAT registration threshold is not checked only at the end of your tax year or accounting year.
UK businesses must monitor their VAT-taxable turnover continuously and register when either of the compulsory registration tests is met.
The current compulsory VAT registration threshold is more than £90,000. However, turnover is not the only factor to consider. The type of supplies you make, where your business is established and whether you expect a large increase in sales can all affect when registration is required.
This guide explains when you need to register for VAT, how the rolling threshold works, what counts as taxable turnover and what you need to do after registration.
What Is the VAT Registration Threshold?
A UK-established business must normally register for VAT when its VAT-taxable turnover goes over £90,000.
The threshold applies to taxable turnover rather than profit.
For example, a business may have:
- £100,000 of taxable sales.
- £65,000 of business expenses.
- £35,000 of profit before tax adjustments.
The VAT registration test normally uses the £100,000 taxable turnover figure rather than the £35,000 profit.
This distinction is particularly important for retailers, tradespeople, manufacturers and other businesses with substantial stock, material or subcontractor costs.
The Two Compulsory VAT Registration Tests
You must normally register when either of the following applies:
- Your total VAT-taxable turnover for the previous rolling 12 months goes over £90,000.
- You realise that your VAT-taxable turnover will go over £90,000 during the next 30 days alone.
These are separate tests with different registration deadlines and effective registration dates.
The Rolling 12-Month VAT Test
The rolling test considers your VAT-taxable turnover during the previous 12 months.
It is not based only on:
- The tax year from 6 April to 5 April.
- Your company financial year.
- The calendar year.
- Your latest completed annual accounts.
You should check your turnover at the end of every month by adding together the VAT-taxable sales made during the previous 12 months.
As one month is added, the oldest month falls out of the calculation.
Rolling Turnover Example
Suppose that on 15 July your VAT-taxable turnover for the previous 12 months reaches £92,000 for the first time.
You have gone over the £90,000 threshold during July.
You must normally:
- Apply for VAT registration by 30 August.
- Use 1 September as your effective date of registration.
You must account for VAT on taxable supplies made from 1 September, even if HMRC has not yet issued your VAT registration number by that date.
The Next 30 Days Test
A separate registration requirement applies when you realise that your VAT-taxable turnover will exceed £90,000 during the next 30 days alone.
This may happen when you:
- Sign a large customer contract.
- Receive a substantial order.
- Arrange a major one-off project.
- Agree several transactions that will be supplied within one month.
This test does not mean that you expect annual turnover to exceed £90,000 eventually. You must expect to exceed the complete threshold during one specific 30-day period.
Next 30 Days Example
On 1 May, you agree to provide £100,000 of taxable services during the next 30 days.
You must normally:
- Apply for registration by 30 May.
- Use 1 May as your effective date of registration.
The effective date is the date you realised that the threshold would be exceeded, not the later date on which the customer pays you.
What Counts as VAT-Taxable Turnover?
VAT-taxable turnover generally includes the value of supplies that are:
- Standard-rated.
- Reduced-rated.
- Zero-rated.
It can also include certain other transactions, such as:
- Goods hired or loaned to customers.
- Business goods used privately.
- Goods bartered, part-exchanged or given away.
- Certain services received from overseas suppliers where the reverse charge applies.
- Transactions subject to the domestic reverse charge.
The value is normally calculated excluding VAT.
Do Zero-Rated Sales Count Towards the Threshold?
Yes. Zero-rated sales remain taxable supplies, even though VAT is charged at 0%.
Businesses making zero-rated supplies can therefore exceed the registration threshold without charging customers any output VAT.
Examples can include businesses supplying certain qualifying foods, books, children’s clothing or exported goods, subject to the relevant conditions.
If most or all of your taxable supplies are zero-rated, you may be able to apply to HMRC for exemption from registration. This requires HMRC’s approval and should not be assumed automatically.
Do Exempt Sales Count Towards the Threshold?
VAT-exempt supplies do not normally count towards the standard VAT registration threshold.
Examples of potentially exempt supplies include certain:
- Insurance services.
- Finance and credit services.
- Education and training supplied by eligible bodies.
- Health services provided by appropriately registered professionals.
- Property transactions.
The VAT treatment depends on the precise supply and the conditions that apply. A business should not assume that an entire profession or industry is exempt.
Exempt supplies are also different from zero-rated supplies. Exempt sales do not normally count towards the registration threshold and can restrict recovery of VAT on related business costs.
What Does Not Normally Count as Taxable Turnover?
Amounts that do not normally form part of VAT-taxable turnover include:
- VAT itself.
- Exempt supplies.
- Income genuinely outside the scope of VAT.
- Loans received by the business.
- Money introduced by the owner or shareholders.
- Transfers between business bank accounts.
- Certain sales of capital assets previously used by the business.
Special rules can apply to land, buildings, business transfers and other unusual transactions. Seek advice where a large asset disposal could affect the threshold.
Use the VAT Checker Spreadsheet
Accounting software can normally produce a sales or VAT-liable turnover report to help monitor the registration threshold.
If you do not use accounting software, you can monitor monthly taxable turnover using a spreadsheet.
Download the Carter Bookkeeping Services VAT Checker
The spreadsheet should be updated every month and should include only the transactions relevant to the VAT-taxable turnover calculation.
Do not rely only on the total amount paid into the bank. Customer deposits, loans, transfers and delayed payments may not match the sales figure used for VAT registration.
What If You Exceed the Threshold Temporarily?
You may be able to apply for an exception from registration where your taxable turnover has gone over £90,000 temporarily.
You will normally need to show that your VAT-taxable turnover during the following 12 months will not exceed the deregistration threshold of £88,000.
This may be relevant where the threshold was exceeded because of:
- An exceptional one-off contract.
- A temporary increase in orders.
- Work that will not be repeated.
- A short-lived change in trading activity.
You must apply for the exception and provide evidence. You should not simply decide that registration is unnecessary.
HMRC will confirm whether the exception has been approved. If it is rejected, HMRC will register the business for VAT.
Non-UK Businesses Supplying the UK
The £90,000 registration threshold is not generally available to a non-established taxable person.
A business based outside the UK may need to register as soon as it makes, or expects to make, taxable supplies in the UK, regardless of their value.
International sales can also involve special rules for imports, exports, online marketplaces, Northern Ireland and place of supply.
Businesses without a UK establishment should obtain specialist advice before beginning UK sales.
Taking Over an Existing Business
If you take over a VAT-registered business, you may need to include the previous owner’s taxable turnover when checking whether registration is required.
The combined turnover of the business being acquired and any existing business activity you already operate can affect the registration test.
A transfer of a business as a going concern can also involve separate VAT rules. The transaction should be reviewed before completion.
Can You Register Voluntarily?
Businesses below the compulsory threshold can often choose to register voluntarily if they make, or genuinely intend to make, taxable supplies.
Voluntary registration may be beneficial where:
- Most customers are VAT registered and can reclaim the VAT charged.
- The business pays substantial VAT on stock, equipment or operating costs.
- Large startup purchases have been made.
- The business expects to exceed the threshold soon.
- The business makes mainly zero-rated sales and expects regular VAT repayments.
It may be less suitable where most customers are private consumers or non-VAT-registered businesses that cannot reclaim the VAT added to their prices.
Voluntary registration should be based on a financial calculation that considers pricing, input VAT, administration and customer type.
How to Register for VAT
Most businesses can register online through the government VAT registration service.
The information required depends on your business structure.
Limited Companies
A limited company may need information including:
- The company registration number.
- The company Unique Taxpayer Reference.
- Business bank account details.
- Annual turnover information.
- An estimate of taxable turnover for the next 12 months.
- Corporation Tax, PAYE and director information.
Sole Traders and Partnerships
An individual or partnership may need:
- A National Insurance number.
- Identity documents.
- A Unique Taxpayer Reference, where available.
- Business bank account details.
- Annual turnover information.
- An estimate of taxable turnover for the following 12 months.
You can usually create the required sign-in details when beginning the online application if you do not already have them.
Register for VAT through GOV.UK
Your Effective Date of Registration
Your effective date of registration is the date from which you become responsible for accounting for VAT.
From that date, you must normally:
- Account for VAT on taxable sales.
- Maintain VAT records.
- Apply the correct VAT rates.
- Retain valid purchase invoices.
- Include the transactions in your first VAT return.
The effective date is not necessarily the date HMRC processes the application or sends the VAT registration number.
What to Do While Waiting for Your VAT Number
You cannot issue a VAT invoice or show VAT separately on an invoice until HMRC gives you a VAT registration number.
However, you may still owe VAT on taxable supplies made from your effective registration date.
While waiting for the number, you can:
- Increase the total amount charged to allow for the VAT that will become payable.
- Explain to the customer that the business is awaiting its VAT number.
- Issue an ordinary invoice that does not describe the additional amount as VAT.
- Reissue a proper VAT invoice after receiving the registration number.
Review contracts and quotations before registration. If a price has been agreed as a fixed VAT-inclusive amount, the business may have to absorb the VAT within that amount.
What Happens After Registration?
After HMRC completes the registration, you should receive:
- A nine-digit VAT registration number.
- Confirmation of the effective registration date.
- Details of the first VAT accounting period.
- Information about when the first VAT return and payment are due.
The VAT registration number must be included on VAT invoices.
HMRC will normally enrol the business into Making Tax Digital for VAT automatically unless an exemption applies.
Making Tax Digital for VAT
VAT-registered businesses must generally maintain the required VAT records digitally and submit VAT returns using compatible software.
Compatible systems can include:
- Cloud accounting software.
- Compatible desktop bookkeeping software.
- A spreadsheet connected to recognised bridging software.
- Connected combinations of accounting and sales systems.
Carter Bookkeeping Services can help you select and configure suitable accounting software.
Reclaiming VAT Paid Before Registration
Your first VAT return may include eligible VAT paid before the effective registration date.
Subject to the relevant conditions, you may be able to reclaim VAT on:
- Goods bought during the four years before registration that you still hold.
- Goods used to produce other goods that you still hold.
- Services received during the six months before registration.
The expenditure must relate to the same business that is now VAT registered and to taxable business activities.
You cannot automatically reclaim VAT on every historic expense. Goods already sold or completely consumed before registration will not normally qualify under the four-year goods rule.
You must retain the invoices and calculations supporting the claim.
Valid Purchase Invoices
You normally need a valid VAT invoice before reclaiming VAT on a business purchase.
You cannot normally reclaim VAT using only:
- A pro-forma invoice.
- A bank statement.
- A supplier statement.
- A delivery note.
- An invoice that does not contain the required VAT information.
If the supplier gives you a pro-forma invoice before payment, ask for a final VAT invoice once the supply has been made or payment has created the relevant tax point.
Simplified and Full VAT Invoices
A simplified VAT invoice may generally be used where the total value of the supply is £250 or less, including VAT.
It normally needs to show:
- The supplier’s name, address and VAT registration number.
- The tax point.
- A description identifying the goods or services supplied.
- The total amount payable, including VAT.
- The VAT rate applying to the supply.
For supplies over £250, a full or appropriately modified VAT invoice will normally be required.
A full VAT invoice generally includes additional details such as the customer’s name and address, invoice number, net values, VAT amounts and total payable.
Reclaiming VAT on Cars and Vehicles
The VAT rules for cars are restrictive and more detailed than the original purchase invoice alone.
You may be able to reclaim all the VAT on a new car where it is used only for business and is not available for private use.
Private use includes ordinary travel between home and a permanent workplace.
Other rules can apply to vehicles used mainly as:
- Taxis.
- Driving-instruction cars.
- Self-drive hire vehicles.
Different treatment can apply to commercial vehicles, leased cars, fuel, repairs and maintenance. A business may be able to reclaim VAT on qualifying running costs even when VAT on the original car purchase cannot be recovered.
VAT Registration and Pricing
Registration can affect the amount customers pay or the profit margin retained by the business.
Suppose you currently charge £100 for a standard-rated service.
| Pricing Decision | Customer Pays | Net Sales Income | VAT |
|---|---|---|---|
| Add VAT to the existing price | £120 | £100 | £20 |
| Keep the final price at £100 | £100 | £83.33 | £16.67 |
If your customers are VAT registered and entitled to recover the VAT, adding it to the existing price may have limited commercial effect.
If your customers are consumers or non-VAT-registered businesses, they bear the complete VAT-inclusive price. You may need to increase prices or accept a lower margin.
Late VAT Registration
If you register late, HMRC can backdate your registration to the date on which you should have been registered.
You may then need to:
- Calculate VAT on taxable sales made since the correct registration date.
- Submit overdue VAT returns.
- Pay the VAT due.
- Pay interest or a penalty where applicable.
- Correct invoices and customer records.
The business may be unable to recover the historic VAT from customers, particularly where prices were agreed as fixed VAT-inclusive amounts.
Contact HMRC or an appropriate adviser promptly if you discover that registration should have taken place earlier.
Common VAT Registration Mistakes
- Checking turnover only once a year: The main test uses a rolling 12-month period.
- Confusing turnover with profit: Business expenses do not reduce taxable turnover for the registration test.
- Ignoring zero-rated sales: They normally count towards the £90,000 threshold.
- Counting exempt income: Exempt supplies do not normally form part of standard taxable turnover.
- Missing the next 30 days test: A large contract can create an immediate registration obligation.
- Waiting for the VAT number before accounting for VAT: The obligation starts from the effective registration date.
- Showing VAT before receiving the registration number: Only a registered business with its number can issue a VAT invoice.
- Assuming temporary turnover removes the requirement: An exception must be requested and approved by HMRC.
- Registering voluntarily without reviewing prices: VAT can reduce margins where customers cannot reclaim it.
- Claiming pre-registration VAT without evidence: Valid invoices and supporting calculations must be retained.
Monthly VAT Threshold Checklist
- Update all sales records.
- Separate taxable, exempt and outside-the-scope income.
- Include standard-rated, reduced-rated and zero-rated sales.
- Calculate taxable turnover for the previous rolling 12 months.
- Remove the oldest month and add the latest month.
- Review large contracts expected during the next 30 days.
- Record the date on which the threshold is exceeded.
- Review prices, contracts and invoice templates.
- Prepare accounting software for VAT.
- Submit the registration application by the correct deadline.
How Carter Bookkeeping Services Can Help
Carter Bookkeeping Services can help businesses maintain the records needed to monitor VAT-taxable turnover and prepare for registration.
Support can include:
- Maintaining regular bookkeeping records.
- Separating taxable, exempt and outside-the-scope income.
- Monitoring rolling 12-month taxable turnover.
- Reviewing the bookkeeping effects of voluntary registration.
- Setting up VAT within accounting software.
- Creating VAT-compliant invoice processes.
- Organising pre-registration purchase records.
- Maintaining digital records for Making Tax Digital.
- Reconciling sales, purchases and VAT control accounts.
- Completing a holistic bookkeeping review of existing records and processes.
Complex questions involving exempt supplies, international transactions, property, partial exemption or unusual VAT classifications may require advice from a VAT specialist.
Frequently Asked Questions
What Is the Current VAT Registration Threshold?
The compulsory registration threshold is more than £90,000 of VAT-taxable turnover.
Is the VAT Threshold Based on Profit?
No. It is based on VAT-taxable turnover before deducting business expenses.
Is the VAT Threshold Checked Each Tax Year?
No. The main test considers the previous rolling 12 months and should normally be reviewed at the end of every month.
Do Zero-Rated Sales Count?
Yes. Zero-rated supplies are taxable supplies and normally count towards the registration threshold.
Do Exempt Sales Count?
VAT-exempt supplies do not normally count towards the standard VAT registration threshold.
Can I Register Before Reaching £90,000?
Yes. A business making, or intending to make, taxable supplies can generally apply for voluntary registration.
Can I Charge VAT While Waiting for My Number?
You cannot issue a VAT invoice or show VAT separately until you receive the registration number. However, you can increase the total price to cover the VAT due from your effective registration date and reissue the invoice after receiving the number.
Can I Reclaim VAT From Before Registration?
Potentially. Eligible VAT may be reclaimed on qualifying goods bought up to four years before registration and still held, and qualifying services received within the previous six months.
Do I Need Accounting Software?
VAT-registered businesses must generally maintain required digital records and submit VAT returns through compatible software. A spreadsheet may form part of the system when used with suitable bridging software.
Monitor Turnover Before Registration Becomes Urgent
VAT registration can affect prices, contracts, cash flow and customer invoices from the effective registration date.
Monitoring taxable turnover every month gives you time to review your pricing, update accounting software and explain the change to customers before the obligation becomes urgent.
Contact Carter Bookkeeping Services to discuss VAT threshold monitoring, bookkeeping or preparation for VAT registration.