The VAT registration threshold explained
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period, or when you expect to exceed it in the next 30 days alone. Registration is backdated to the first day of the second month after you crossed the threshold.
It is a rolling test, not a tax year test
This is the part that catches people. The £90,000 is measured over any consecutive 12 months, not over your accounting year or the tax year. You have to check it every month.
A business doing £7,000 a month quietly crosses £90,000 in its thirteenth month, not at any natural year end.
The two tests
| Test | When it applies | Register by |
|---|---|---|
| Backward look | Taxable turnover in the last 12 months exceeded £90,000 | Within 30 days of the month end; registration starts the first day of the following month |
| Forward look | You expect to exceed £90,000 in the next 30 days alone | Before the end of that 30-day period; registration starts immediately |
The forward-look test only needs one big contract. Winning a £95,000 order means you register straight away, regardless of what you have turned over before.
What registering late costs
You owe HMRC the VAT you should have charged from the date you should have registered, whether or not you actually charged it. For a business selling to consumers, that is 16.67% of everything taken since, out of your own margin.
A failure-to-register penalty is charged on top, between 5% and 15% of the VAT owed depending on how late you were and whether the disclosure was prompted.
Should you register voluntarily?
If your customers are VAT-registered businesses, usually yes. They reclaim the VAT you charge, so it costs them nothing, and you recover VAT on your own purchases.
If your customers are consumers, usually no. You either raise prices by 20% or absorb it out of your margin. Many small businesses deliberately manage turnover to stay below the threshold for exactly this reason.
This guide is general information, current at 9 November 2026. Tax rules change and depend on your circumstances. Please take advice before acting on it.