VAT registration in the UK: thresholds, schemes and deadlines explained

VAT is often the first tax that makes a growing business feel "grown up". Registering changes your prices, your invoices, your cash flow and your bookkeeping routine, and getting the timing wrong can leave you paying VAT out of your own pocket on sales you have already made. This guide explains when registration is compulsory, when it is worth registering voluntarily, how to register, which VAT accounting schemes are available and what you must do once you are registered, from Making Tax Digital to invoices, deadlines and penalties.

Compulsory and voluntary registration

You must register for VAT if your VAT taxable turnover goes over the registration threshold, currently £90,000. Taxable turnover is the total of everything you sell that is not exempt from VAT, including zero-rated sales. It does not include exempt supplies (such as most insurance, finance and certain education and health services) or items outside the scope of VAT.

You may register voluntarily at any turnover, provided you are making, or intend to make, taxable supplies. Voluntary registration is common where:

• your customers are mainly VAT-registered businesses, which can reclaim the VAT you charge, so your prices are effectively unaffected;
• you have significant set-up costs or equipment purchases with VAT you would like to reclaim;
• you make zero-rated supplies, so you charge no VAT but can recover VAT on costs;
• you want to appear more established to larger clients.

It is usually less attractive when most of your customers are members of the public, because adding 20% to your prices, or absorbing it, directly reduces your competitiveness or margin.

Businesses that are not established in the UK but make taxable supplies here have no threshold at all and must register from their first UK taxable supply.

The £90,000 threshold: the two tests

There are two separate tests, and you need to watch both.

The backward-looking (rolling) test

At the end of every month, add up your VAT taxable turnover for the previous twelve months. This is a rolling twelve-month period, not your financial year or the tax year. If the total exceeds £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.

For example, if your rolling total first exceeds £90,000 at the end of March, you must register by 30 April, and you will be VAT-registered from 1 May.

The forward-looking (30-day) test

If at any point you expect your VAT taxable turnover in the next 30 days alone to exceed £90,000, you must register by the end of that 30-day period. In this case your registration is effective from the start of the 30 days, the date you realised the threshold would be exceeded. This commonly catches businesses that win a single large contract.

Temporary spikes

If you exceed the threshold only temporarily, and can show that your taxable turnover in the next twelve months will fall below the deregistration threshold of £88,000, you can ask HMRC for an exception from registration. You must still apply; you cannot simply assume the exception applies.

How to register for VAT

Most businesses register online through HMRC, either themselves or through an agent such as an accountant or bookkeeper. HMRC's VAT registration guidance on GOV.UK explains the process. You will normally need:

• your business details, including your Unique Taxpayer Reference or company registration number;
• your National Insurance number (for sole traders and partners) and personal details;
• business bank account details;
• your turnover figures and the date you exceeded, or expect to exceed, the threshold;
• a description of your business activities;
• details of any associated businesses.

Once registered, you receive a VAT registration certificate showing your VAT number, your effective date of registration and the date of your first return. Until your VAT number arrives, you cannot show VAT on invoices, but you should increase your prices to allow for it and then issue VAT invoices once you have the number.

Reclaiming VAT on pre-registration costs

You can usually reclaim VAT on goods bought for the business up to four years before registration, provided you still have them or used them to make goods you still hold, and on services bought up to six months before registration. You will need valid VAT invoices, so keep them even before you register.

VAT accounting schemes compared

Once registered, you can choose to stay on standard VAT accounting or join one or more of HMRC's simplification schemes. The right choice depends on your margins, costs, cash flow and customers.

Flat Rate Scheme and the limited cost trader rule

The Flat Rate Scheme can simplify returns and, for some service businesses, reduce the VAT paid. However, the limited cost trader rule means that businesses spending very little on goods (services such as rent, travel and software do not count, nor do food and drink for staff, vehicles and fuel) must use a rate of 16.5%. At that rate most businesses pay more than under standard accounting. Newly registered businesses on the scheme get a 1% reduction in their flat rate for the first year. Review the calculation every quarter, because your status can change from one period to the next. See HMRC's Flat Rate Scheme guidance.

Cash Accounting and Annual Accounting

Cash accounting gives automatic bad-debt relief, since you do not pay VAT on sales until the customer pays, but you also cannot reclaim input VAT until you pay your suppliers. Annual accounting usually involves nine monthly or three quarterly interim payments based on the previous year, with a balancing payment and the annual return due two months after the end of your VAT accounting year. The two can be combined. See HMRC's cash accounting guidance for the details.

Return deadlines, penalties and interest

Most businesses submit VAT returns quarterly. Both the return and the payment are due one calendar month and seven days after the end of the VAT period. For a quarter ending 30 June, that is 7 August. If you pay by Direct Debit, HMRC collects the payment a few working days after the deadline.

Late submission: penalty points

Since January 2023, late VAT returns earn penalty points instead of immediate fines. A £200 penalty is charged when you reach the threshold, which is two points for annual filers, four for quarterly filers and five for monthly filers, and a further £200 for each late return after that. Points can be removed after a period of full compliance. Nil and repayment returns count too.

Late payment penalties and interest

Late payment penalties are separate. They are charged as a percentage of the VAT outstanding, with a first penalty if the tax is still unpaid after 15 days, a larger one after 30 days, and a daily-rate penalty after that. Agreeing a Time to Pay arrangement with HMRC early can reduce or stop these penalties. Late payment interest is charged from the day after the deadline until you pay. The current rates are published by HMRC and do change.

Records, invoices and Making Tax Digital

Making Tax Digital for VAT

Since April 2022 every VAT-registered business, whatever its turnover, must follow Making Tax Digital for VAT. That means:

• keeping VAT records digitally, in software or in spreadsheets;
• submitting VAT returns through MTD-compatible software, or bridging software from a spreadsheet;
• maintaining digital links between records and the return, without retyping figures.

If you are a sole trader or landlord, you may also be moving into Making Tax Digital for Income Tax, which began in April 2026 for those with qualifying income over £50,000. Using the same software for both is usually the simplest approach.

Record-keeping and VAT invoices

You must keep VAT records for six years. These include copies of all sales and purchase invoices, your VAT account (the summary linking your records to your returns), and records of any adjustments, imports, exports and credit notes.

A full VAT invoice must normally show:

• a unique, sequential invoice number;
• your business name, address and VAT registration number;
• the invoice date and, if different, the time of supply (tax point);
• the customer's name and address;
• a description of the goods or services, with quantity and unit price;
• the rate of VAT applied and the amount charged excluding VAT;
• the total VAT charged and any discount.

For retail sales of £250 or less (including VAT), a simplified invoice may be issued, showing fewer details. You must issue a VAT invoice to VAT-registered customers within 30 days of the supply. HMRC's VAT Notice 700 is the definitive reference. UK VAT rates are 20% standard, 5% reduced and 0% zero rate.

Cancelling your VAT registration

You can apply to deregister voluntarily if your taxable turnover for the next twelve months is expected to be below the deregistration threshold of £88,000. You must cancel your registration within 30 days if you stop making taxable supplies, for instance because you close or sell the business, or if you join a VAT group.

On deregistration you submit a final VAT return, and you may have to account for VAT on stock and assets you still hold on which you reclaimed VAT, if the VAT due is more than £1,000. If you sell the business as a going concern, the buyer may be able to take over your VAT number. Take advice before deregistering, as it affects pricing and reclaims.

How a bookkeeper can help with VAT

At Verdi Bookkeeping, based in Camden, London NW1, our team has over 25 years' experience of preparing VAT returns for sole traders, partnerships and limited companies, including businesses in entertainment, TV production, publishing and the legal sector. We monitor your rolling turnover so the threshold does not catch you out, keep your records MTD-compliant, reconcile your VAT account each quarter and submit returns on time. Our article on bookkeeping habits for small businesses covers the routines that make VAT quarters painless, and our bookkeeping service keeps the underlying records in order. For advice on which scheme is best for you, we work alongside your accountant.

Rates, thresholds and deadlines change, so always check the latest position on GOV.UK or speak to us or your accountant before making a decision.

Frequently asked questions