The VAT threshold for 2025/26 is £90,000. That is the same figure it has been since 1 April 2024, when it increased from £85,000. If your taxable turnover exceeds £90,000 in any rolling 12-month period, you are legally required to register for VAT with HMRC.

This is not a fixed tax year limit. It is a rolling test. You could go over the vat threshold 2025 26 in March, register in April, and your effective date of registration would be backdated to the start of the month you exceeded it. That catches a lot of business owners out.

In this guide I will cover exactly when you need to register, how to calculate your turnover correctly, what happens if you deliberately stay under the threshold, and whether voluntary registration ever makes sense.

What Counts as Taxable Turnover for VAT Purposes?

Taxable turnover means the total value of everything you sell that is not exempt from VAT. That includes goods and services at the standard rate (20%), reduced rate (5%), and zero rate (0%). It also includes goods you bring into the UK from abroad.

It does not include:

  • Exempt supplies (insurance, education, certain property transactions)
  • Capital asset sales (selling a van or a piece of machinery)
  • Gifts of goods where you reclaim VAT on the purchase
  • Dividends or other investment income

For a typical limited company director running a consultancy in Manchester's Northern Quarter, their turnover is simply the gross invoices raised. For a sole trader plumber in Bristol, it is the total of all work done, including materials, before deducting expenses.

The key point: turnover is gross. It is what you charge your customers, not what you bank after costs.

The Rolling 12-Month Test

HMRC does not look at your accounting year. It looks at any period of 12 consecutive months. At the end of every month, you add up your taxable turnover for that month and the previous 11 months. If that total exceeds £90,000, you must register within 30 days.

Here is a worked example.

A freelance graphic designer in Shoreditch has the following monthly turnover:

  • April 2025 to January 2026: steady at £6,000 per month (£60,000 total)
  • February 2026: £12,000 (a big branding project)
  • March 2026: £22,000 (two large corporate clients)

In March 2026, their rolling 12-month total from April 2025 to March 2026 is £94,000. That is £4,000 over the vat threshold 2025 26. They must notify HMRC by 30 April 2026. Their effective date of registration will be 1 April 2026, the start of the month they exceeded the threshold.

If they had hit £91,000 in February 2026, they would have needed to register by 31 March 2026, with an effective date of 1 March 2026.

This is why I tell clients to check their rolling 12-month total every single month. Do not wait until your year-end. By then you are already late.

What Happens If You Go Over the Threshold and Do Not Register?

If you exceed the vat threshold 2025 26 and do not register within 30 days, HMRC will backdate your registration to the correct date. They will then charge you the VAT you should have charged your customers from that date, even if you never invoiced for it.

That means you pay the VAT out of your own pocket. There is no way to recover it from customers retrospectively unless you have a contractual clause allowing it. Most small businesses do not.

You will also face a penalty. HMRC calculates this as a percentage of the VAT due, based on how late you are. The penalty can reach 30% of the VAT owed for late notification beyond 18 months. Interest applies on top.

I have seen a Birmingham construction firm hit with a £14,000 VAT bill plus £3,200 in penalties because they did not spot they had gone over the threshold. Their accountant had not flagged it either. The business survived, but it was a serious cash flow shock.

Can You Stay Under the Threshold Deliberately?

Some business owners deliberately keep turnover below £90,000 to avoid VAT registration. That is legal, provided you are not artificially reducing your turnover to stay under.

HMRC has anti-avoidance rules. If you turn away work, delay invoicing, or restructure your business solely to avoid VAT registration, HMRC can treat you as if you were registered anyway. The test is whether your actions have a genuine commercial purpose beyond avoiding VAT.

A sole trader joiner in Leeds who turns down a £15,000 contract because it would push them over the threshold is taking a real commercial risk. They lose the work. They also lose the customer relationship. And if HMRC ever investigates, they will want to see evidence that the decision was commercially justified, not purely tax-driven.

If you are consistently hovering around the £85,000 to £90,000 mark, you should model what happens if you register voluntarily. The extra admin cost and the need to charge VAT to customers may be offset by the ability to reclaim VAT on your own purchases. For many businesses, the net effect is neutral or positive.

Voluntary Registration: When Does It Make Sense?

If your turnover is below £90,000, you can still register for VAT voluntarily. This is common in three scenarios.

First, if most of your customers are VAT-registered businesses. They can reclaim the VAT you charge them, so it costs them nothing. You, meanwhile, can reclaim VAT on your own purchases. A software consultancy in Manchester with £70,000 turnover and £20,000 in VAT-inclusive expenses would reclaim around £3,333 in VAT each year. That is a real saving.

Second, if you are a limited cost trader. If your business has low VAT-inclusive costs (less than 2% of turnover on relevant goods, or less than £1,000 per year), the flat rate scheme may not benefit you. But standard VAT accounting can still work if you have meaningful costs to reclaim.

Third, if you are starting a business and expect to exceed the threshold quickly. Registering early avoids the scramble later. It also makes your business look more established to larger clients.

We cover the full decision process in our VAT registration and compliance services. If you are unsure whether voluntary registration is right for you, run the numbers with your accountant before making the call.

How the Flat Rate Scheme Interacts with the Threshold

The flat rate scheme is a simplified VAT scheme for businesses with turnover under £150,000 (excluding VAT). You apply a fixed percentage to your gross turnover and pay that to HMRC. You cannot reclaim VAT on most purchases, except for capital assets over £2,000.

If you are on the flat rate scheme and your turnover exceeds £230,000, you must leave it. But the £90,000 registration threshold still applies. You register for VAT first, then elect to use the flat rate scheme if you qualify.

For limited cost traders (those whose relevant goods expenditure is less than 2% of turnover or less than £1,000 per year), the flat rate percentage is 16.5%. That is very close to the standard 20% rate. For most limited cost traders, standard VAT accounting is better because you can reclaim input VAT on purchases.

A contractor in Canary Wharf using their own limited company and working through an umbrella or agency will almost certainly be a limited cost trader. The flat rate scheme offers little benefit. Standard VAT accounting, combined with the ability to reclaim VAT on laptops, software, travel, and subsistence, usually works out better.

What About the Deregistration Threshold?

If your turnover falls below £88,000, you can apply to deregister from VAT. This is the cancellation threshold, set at £1,000 below the registration threshold. You must have a genuine reason for deregistering, and HMRC will check that your turnover is likely to stay below the threshold.

If you deregister, you must account for VAT on any stock and assets you hold at the time of deregistration. This is known as a VAT clawback. It can be a significant cost if you hold high-value stock.

I advise clients not to deregister lightly. Once you are in the VAT system, the admin is manageable. Deregistering and then re-registering later is more hassle than staying registered.

Making Tax Digital for VAT

If you are VAT-registered, you must use Making Tax Digital (MTD) compatible software to keep your records and submit your VAT returns. This has been mandatory since April 2019 for most businesses. There is no paper option anymore.

If you are registering for VAT for the first time in 2025/26, you need to choose MTD-compatible software from day one. Xero, FreeAgent, QuickBooks, and Sage all support MTD for VAT. You cannot use spreadsheets alone unless you use bridging software.

Our VAT and Making Tax Digital blog has more detail on the software options and how to set up your digital records.

How to Register for VAT

You register online through your Government Gateway account. The form asks for your business details, turnover figures, bank account information, and the date you exceeded the threshold. You will also need to choose your VAT accounting scheme (standard, flat rate, annual accounting, or cash accounting).

The registration process takes 2 to 4 weeks. Once registered, HMRC sends you a VAT registration certificate (VAT4) showing your VAT number and effective date of registration. You must display your VAT number on invoices from that date.

If you need to register urgently because you have already gone over the threshold, you can request a faster service. HMRC can process urgent registrations within a few days if you call them.

If you are a new limited company, you will receive a CT41G form from HMRC when you incorporate. That form asks for your company details and expected turnover. It does not register you for VAT automatically. You still need to monitor your turnover and register when you hit the threshold.

Practical Steps for Business Owners

Here is what I recommend to every client, whether you are a sole trader in Glasgow, a partnership in Liverpool's Baltic Triangle, or a limited company in Sheffield's Kelham Island.

  • Check your rolling 12-month turnover at the end of every month. Set a calendar reminder.
  • If you go over £90,000, notify HMRC within 30 days. Do not wait.
  • If you are approaching the threshold, decide whether to register voluntarily or manage your turnover carefully.
  • If you register voluntarily, model the net effect on your cash flow and pricing.
  • Choose MTD-compatible software before you register.
  • Speak to an accountant if your turnover is erratic or you have multiple businesses.

For more detailed guidance on your specific situation, visit our contact page to arrange a call. We work with businesses across every sector and can help you decide the right approach for your VAT position.

The vat threshold 2025 26 is clear: £90,000. What is not always clear is when you hit it and what to do next. That is where good advice makes the difference.