- You must register once taxable turnover in any rolling 12-month period exceeds £90,000. It has nothing to do with your tax year.
- You then have 30 days from the end of that month to register, and you are VAT-registered from the first day of the second month after crossing.
- If you sell to VAT-registered businesses, VAT is close to cost-free. If you sell to consumers, it is effectively a 20% price rise.
- Register late and you still owe the VAT on sales already made, out of money you never collected.
The word that catches people out is rolling. It is not your tax year. It is the last twelve months, recalculated every single month, which is how businesses cross it without noticing.
VAT registration is the one tax milestone that arrives on its own schedule rather than yours. Businesses that plan for it handle it in an afternoon. Businesses that do not often discover they crossed the line months ago and owe VAT on sales where they never charged any.
This guide explains the test, the deadlines, and the commercial decision that follows. The VAT threshold forecaster will project your own turnover and tell you which month you cross.
The test is rolling, not annual
You must register for VAT when your taxable turnover over any rolling twelve month period exceeds £90,000. The word doing the work there is rolling.
It is not your accounting year. It is not the tax year. At the end of every single month you add up the previous twelve months of taxable sales and compare that total to £90,000. A business whose annual figures look comfortably under can still cross the line after a strong run of months.
The backward look: taxable turnover in the last twelve months has exceeded £90,000. The forward look: you expect to exceed £90,000 in the next thirty days alone. The forward test requires immediate registration, so a single very large order can trigger it on its own.
Taxable turnover means sales of goods and services that are not exempt from VAT. It is measured before costs, so it is turnover rather than profit. Zero-rated sales still count towards it, which surprises many food and children's clothing businesses.
What happens once you cross
You cross the threshold
At the end of a month, your rolling twelve month total passes £90,000. The clock starts here, whether or not you noticed.
You must register
Thirty days from the end of the month in which you went over. Registration is done online and usually takes a couple of weeks to come back with a VAT number.
You are VAT-registered from this date
The first day of the second month after you crossed. From here you charge VAT on everything that is standard-rated, and you can reclaim VAT on your costs.
Returns, usually quarterly
Filed through Making Tax Digital compatible software. Payment is normally due one calendar month and seven days after the end of each VAT period.
You still owe VAT from the date you should have been registered. Because you did not charge it at the time, that money comes out of your own pocket. On £30,000 of sales made after the effective date, that is £5,000 of VAT you never collected. HMRC can add a penalty on top.
The real decision: absorb it or pass it on
Registration itself is administrative. The commercial question is what happens to your prices, and the answer depends almost entirely on who your customers are.
If your customers are VAT-registered businesses, VAT is close to cost-free for them. You add 20%, they reclaim 20%, and their real cost is unchanged.
Meanwhile you start reclaiming VAT on your own costs: stock, equipment, software, fuel, professional fees. For many business-to-business suppliers, registration is a net gain.
Action: add VAT on top of your existing prices and tell customers clearly. Quote excluding VAT and state that you do.
Consumers cannot reclaim anything. Adding 20% to your prices is a genuine 20% price rise to them, and you will feel it.
Your options are to raise prices and accept some loss of volume, absorb the VAT and take a significant margin hit, or split the difference. Absorbing it entirely on a 40% margin turns that margin into roughly 25%.
Action: model all three before you cross. Use the pricing calculator to see what absorbing it does to your break-even volume.
Mixed customer bases are the hardest case, because one price has to work for both.
The usual approach is to display VAT-inclusive prices to consumers and VAT-exclusive prices to business customers, which most invoicing and ecommerce systems support directly.
If the consumer side is small and price-sensitive, some businesses absorb the VAT there and pass it on to business customers, effectively running two margins.
Schemes that can make it easier
| Scheme | What it does | Worth considering if |
|---|---|---|
| Cash accounting | You account for VAT when you are paid, not when you invoice | Customers pay slowly and you do not want to fund their VAT |
| Annual accounting | One return a year with instalments through the year | You want fewer deadlines and predictable payments |
| Flat rate | Pay a fixed percentage of turnover, reclaim little input VAT | Turnover under £150,000 and few VATable costs |
The flat rate scheme is less generous than it used to be. The limited cost trader rules push businesses with very low goods spending onto a 16.5% rate, which removes most of the benefit for service businesses. Check which category you fall into before assuming it helps.
Preparing before you get there
If the forecaster says you are six months away, that is enough time to do this calmly.
Before you cross the threshold
0 of 9Generally you can recover VAT on goods bought in the four years before registration, provided you still hold them, and on services in the six months before. For a business that has recently bought equipment or stock, that first return can be unexpectedly favourable. Keep the invoices.
Should you stay under deliberately?
Some businesses deliberately keep turnover below £90,000 to avoid registering. It is legal, and for a consumer-facing business with thin margins it can be rational.
It is also a ceiling you are choosing to build. Turning away work, closing for part of the year or splitting a business artificially to stay under are all real costs, and the last one attracts HMRC attention under the business splitting rules.
The arithmetic is worth doing properly. Crossing from £89,000 to £110,000 of turnover while absorbing the VAT leaves you with about £91,700 net. You have done 24% more work for 3% more money. Push on to £130,000 and the picture improves considerably. The awkward zone is the stretch just above the threshold, and the answer is usually to move through it quickly rather than to stop short of it.