VAT registration: when you must register and what happens next

VAT is the tax most small businesses meet first as a registration question rather than a bill. Until you are registered, you neither charge VAT nor reclaim it. Once you are, every taxable sale carries it, every period needs a return, and the records have to be digital. Knowing exactly when registration becomes compulsory, and what you can choose to do before then, makes the change easier to plan for.

The threshold for 2026-27

The registration threshold is £90,000 of taxable turnover. It has applied since 1 April 2024 and is the figure in force for 2026-27. The deregistration threshold, the level below which you can ask to come off the register, is £88,000.

Taxable turnover means the value of everything you sell that is not exempt from VAT. Sales at the standard rate (20%), the reduced rate (5%) and the zero rate all count. Exempt sales, such as insurance or the services of doctors and dentists, do not, and nor do amounts outside the scope of VAT altogether. Turnover is measured before costs, so profit is irrelevant to the test.

The test looks at all the taxable supplies made by the person carrying on the business, whether that is a sole trader, a partnership or a company. A sole trader with two different trades adds the sales of both together.

When registration becomes compulsory

There are two separate tests. Failing either one means you must register.

Looking back: any rolling 12 months

At the end of every month, look at your taxable turnover for the 12 months ending that day. If it has gone over £90,000, you must tell HMRC within 30 days of the end of that month. Your registration then takes effect from the first day of the second month after the month you went over.

As a worked example, suppose a bakery’s rolling 12-month total first passes £90,000 during March. It has until 30 April to register, and it is treated as registered from 1 May. From that date its taxable sales carry VAT, whether or not it has its VAT number yet.

The test does not follow your tax year or your accounting year. A business can stay below the threshold for a full accounting year and still cross it on a rolling basis a few months later, which is why a monthly running total is worth keeping once turnover is in the region of £70,000 or £80,000.

Looking forward: the next 30 days on their own

The second test asks a different question: is there reason to expect that taxable sales in the next 30 days alone will exceed £90,000? This typically arises when a business wins a single large contract or order. If so, you must register by the end of that 30-day period, and registration takes effect from the start of it, not from the date the sales are actually made.

This test catches businesses that might otherwise be well below the rolling 12-month figure, such as a new company whose first contract is large.

Temporary peaks and zero-rated sales

If your turnover goes over the threshold only because of a one-off, and you can show it will fall back below the deregistration threshold in the next 12 months, you can apply to HMRC for an exception from registration. That application is made on paper, using form VAT1, rather than online.

A business whose sales are mostly zero-rated can apply for exemption from registration, because it would normally be reclaiming more VAT than it charges. HMRC decides whether to grant it.

Other situations

• A business based outside the UK that makes any taxable supplies in the UK has no threshold: it must register whatever its turnover.
• If you take over a business that is already VAT-registered, the turnover of the business you bought is added to yours when applying the test.

What late registration costs

If you register late, VAT is still due on every taxable sale from the date you should have been registered. If you did not charge your customers VAT at the time, it usually comes out of your own margin, because it is often difficult to go back to customers for it. HMRC may also charge a penalty for failing to notify.

Registering voluntarily

You can register below the threshold if you are making taxable supplies, or if you are carrying on a business and intend to make them. Whether you should is a commercial judgment, and it usually turns on who your customers are.

Reasons it can make sense:

• Your customers are VAT-registered businesses. They can reclaim the VAT you charge, so adding 20% does not change their real cost.
• You buy in a lot of standard-rated goods or services. Registration lets you reclaim the VAT on them.
• Your sales are mainly zero-rated. You charge no VAT but can reclaim VAT on your costs, which often produces repayments.
• You have set-up costs. VAT on some purchases made before registration can be reclaimed, within the time limits below.

Reasons to be cautious:

• Your customers are the public or small unregistered businesses. They cannot reclaim VAT, so you either raise your prices or absorb the VAT out of your margin.
• The administration is permanent. Returns are due every period, the records must meet Making Tax Digital rules, and late returns and payments attract penalties.
• It does not end automatically. You stay registered until the registration is cancelled, which normally means showing that your taxable turnover has fallen below the deregistration threshold or that you have stopped making taxable supplies.

A general illustration: a freelance designer billing other companies may find voluntary registration costs her clients nothing and lets her reclaim VAT on equipment and software. A hairdresser whose customers are all members of the public would usually face a choice between higher prices and lower margins.

How to register

Most businesses register online, either themselves after signing in to HMRC’s online services, or through an agent. A few cases still need the paper form VAT1, including the temporary exception described above and some group registrations.

When registration is processed, HMRC sends a 9-digit VAT registration number, confirms your effective date of registration, and tells you when your first return and payment are due. HMRC also signs new registrations up for Making Tax Digital for VAT, unless the business is exempt or has applied for an exemption. You should set up a VAT online account as soon as the number arrives.

What happens from the effective date

Between registering and receiving your number

Your obligation to account for VAT starts on the effective date, which may be before the number reaches you. During that gap you cannot put VAT on an invoice, because you do not yet have a number to show. The usual approach is to raise your prices to cover the VAT you will owe and, once the number arrives, issue VAT invoices for those sales so VAT-registered customers can reclaim it.

Charging VAT

From the effective date, each taxable sale carries VAT at the rate that applies to it: 20% for most goods and services, 5% for some, such as home energy, and 0% for zero-rated items such as most food. VAT-registered customers will need a VAT invoice showing your VAT number.

Your first return

Most businesses file quarterly. Your first return and payment are due one calendar month and seven days after the end of the first period, and HMRC’s confirmation letter sets out the dates. If your figures suggest a different VAT accounting scheme would suit you better, such as Cash Accounting or the Flat Rate Scheme, registration is a natural time to look at it. Our VAT returns page explains the schemes and the penalty regime.

Reclaiming VAT on costs from before registration

VAT paid before your effective date can sometimes be reclaimed, subject to two time limits:

In both cases the purchase must have been made for the business that is now registered and must relate to the taxable supplies it makes. Keep the invoices, because they are the evidence for the claim. Goods already used up or sold before registration, and services bought more than six months before it, fall outside the rules.

Making Tax Digital from the first day

Since April 2022, every VAT-registered business has had to keep its VAT records digitally and send returns from software that connects to HMRC, regardless of turnover. That applies from the first return after registration, so choosing and setting up software is part of registering, not something to leave until the first deadline. Data moving between programs must travel by a digital link; copying figures across by hand does not count.

Cancelling your registration

There are two routes off the register.

• You must cancel if you stop being eligible, for example because you stop trading or stop making taxable supplies. You have 30 days to tell HMRC, and a penalty may apply if you do not.
• You may cancel if your taxable turnover is below £88,000 (the 2026-27 deregistration threshold).

Most cancellations are made online. A paper form, VAT7, is needed in some cases, such as a business sold to a new owner who will not take over the VAT number. HMRC usually confirms within 40 working days.

From the cancellation date you stop charging VAT. A final return is required covering the period up to and including that date. If you reclaimed, or could have reclaimed, VAT on stock or other assets you still hold, VAT has to be accounted for on them in the final return where the total due is more than £1,000. VAT records must still be kept for six years.

Where a business is sold as a going concern, the buyer can take over the seller’s VAT registration number instead of registering afresh, provided both of them tell HMRC.

How we can help

We can check when your turnover crosses, or is likely to cross, the threshold, register the business, review the VAT on pre-registration costs, and set up the records for Making Tax Digital before the first return falls due. We then prepare and file the VAT returns themselves, usually alongside bookkeeping.

If you think you should have registered earlier than you did, our specialist practice, Linx Tax Defence, handles voluntary disclosures to HMRC. If HMRC is already asking questions about your VAT, it also handles VAT investigations.