A business must register for VAT once its taxable turnover in any rolling twelve-month period passes £90,000, or as soon as it expects to pass that figure in the next 30 days alone. Registration can be cancelled if turnover falls below £88,000. The test is not tied to the tax year or the accounting year: it is checked at the end of every month, looking back over the previous twelve. Registration means charging 20% on most sales, filing quarterly digital returns and reclaiming VAT on business purchases, and the effect on a business depends heavily on whether its customers can reclaim what it charges.
The thresholds
| Limit | |
|---|---|
| Registration threshold | taxable turnover above £90,000 in any 12 months |
| Deregistration threshold | taxable turnover below £88,000 |
| Flat Rate Scheme | join at £150,000 or less excluding VAT; leave above £230,000 including VAT |
| Cash accounting and annual accounting schemes | join at £1.35 million or less; leave above £1.6 million |
Taxable turnover is the total of sales that would attract VAT at the standard, reduced or zero rate, so zero-rated sales such as most food and children’s clothing count towards the £90,000 while exempt sales such as insurance, finance and most residential lettings do not. A business that passes the threshold has 30 days from the end of the month in which it did so to register, and is registered from the first day of the following month; one that expects to exceed it within the next 30 days must register immediately and is registered from the date it formed that expectation. The VAT registration checker runs the rolling twelve-month test on your monthly sales and shows how close to the line you are.
What registration does to prices
| Customers | What happens |
|---|---|
| VAT-registered businesses | You add 20%; they reclaim it. Your price to them is unchanged and you can now reclaim VAT on your own costs. |
| Consumers and unregistered businesses | Either your prices rise by 20% or you absorb the VAT, keeping one sixth less of each sale. |
A sole trader with £90,000 of sales to the public who holds prices keeps £75,000 after passing £15,000 of output VAT to HMRC, less whatever input VAT can be reclaimed on costs. This is why service businesses selling to consumers often manage their turnover down to stay under the threshold, and why businesses selling to other businesses frequently register voluntarily before they reach it. The VAT calculator adds and removes VAT at 20%, 5% and 0% for pricing.
Rates once registered
Most goods and services carry the 20% standard rate. The 5% reduced rate covers domestic fuel and power, children’s car seats, some energy-saving materials and a handful of other items; the zero rate covers most food, books, newspapers, children’s clothing and public transport, which count as taxable at 0% so their VAT on costs can still be reclaimed. Exempt supplies carry no VAT and give no right to reclaim. Registered businesses file returns quarterly through Making Tax Digital software, paying the difference between VAT charged and VAT reclaimed one month and seven days after the end of each quarter.
The Flat Rate Scheme
Small businesses with turnover up to £150,000 excluding VAT can join the Flat Rate Scheme, paying a fixed percentage of VAT-inclusive turnover instead of accounting for output and input VAT separately, and keeping the difference. Input VAT cannot be reclaimed except on single capital purchases over £2,000. A 1% discount applies in the first year of registration.
| Sector | Flat rate |
|---|---|
| Retailing food, confectionery, newspapers or children’s clothing | 4% |
| Pubs | 6.5% |
| General building or construction services | 9.5% |
| Catering services including restaurants and takeaways | 12.5% |
| Hairdressing or other beauty treatment services | 13% |
| Management consultancy | 14% |
| Accountancy or book-keeping | 14.5% |
| Computer and IT consultancy or data processing | 14.5% |
| Limited cost business, any sector | 16.5% |
A limited cost business is one whose spending on goods is under 2% of turnover or under £1,000 a year, excluding capital items, food, vehicles and fuel. Most contractors and consultants fall into this category and must use 16.5%, which removes almost all of the scheme’s advantage. An IT contractor with £80,000 of turnover and £5,000 of VATable costs pays £13,920 on the scheme at 14.5% against £15,000 under standard accounting, a saving of £1,080; the same contractor classed as a limited cost business pays £15,840 at 16.5% and saves £60. The flat rate VAT calculator compares the two methods for your sector, turnover and costs. Businesses must leave the scheme once VAT-inclusive turnover passes £230,000.
Sole traders and companies
The threshold applies per business, not per owner, and covers all the trading activities of one sole trader or one company together. Splitting a business artificially to stay under the limit is challenged by HMRC. Registration does not change how profits are taxed: a sole trader still pays income tax and Class 4 National Insurance on profit, and a company corporation tax, both calculated on figures net of VAT. The sole trader versus limited company calculator compares the two structures, and the side hustle tax calculator covers small trading income well below the VAT threshold.
Common questions
What is the VAT threshold in 2026/27? £90,000 of taxable turnover in any rolling twelve-month period. The deregistration threshold is £88,000.
Is the threshold per tax year? No. It is tested at the end of every month over the previous twelve months, whatever your accounting year, and separately on expected sales over the next 30 days.
Do zero-rated sales count? Yes. Zero-rated sales are taxable at 0% and count towards the £90,000. Exempt sales do not.
Can I register voluntarily? Yes, at any turnover. It suits businesses whose customers are VAT registered, because they reclaim the VAT charged and the business recovers VAT on its own costs.
What is the Flat Rate Scheme? A simplified scheme for businesses with turnover up to £150,000 excluding VAT that pays a fixed sector percentage of gross turnover instead of full VAT accounting. Limited cost businesses pay 16.5%.
When do I have to leave the Flat Rate Scheme? When VAT-inclusive turnover in the previous twelve months exceeds £230,000, or is expected to in the next 30 days.
Information, not tax advice. Thresholds and scheme rates are the published figures on gov.uk: VAT thresholds and gov.uk: VAT Flat Rate Scheme; worked figures are from the site’s calculator. Take accountancy advice on registration and scheme choice before acting on them.