For UK small businesses, understanding when you must register for VAT is essential to remain compliant and avoid penalties. From 1 April 2025, the VAT registration threshold will remain at £90,000 of taxable turnover in any rolling 12-month period and is set to stay the same for 2026. This detailed guide explains how the threshold works, how to track your turnover, what steps to take if you exceed the limit, and the advantages and costs of VAT registration.
What Is the VAT Threshold for 2025 & 2026?
The VAT registration threshold is the level of taxable turnover at which you must register for VAT. HMRC has confirmed that:
- From 1 April 2025, the threshold will be £90,000.
- It will stay at £90,000 until at least 31 March 2026.
Taxable turnover includes all standard-rated, reduced-rated and zero-rated sales, but excludes exempt supplies.
How the VAT Threshold Works
HMRC operates a rolling 12-month basis. Each time you issue a VATable sale, you add the net value to your total turnover for the previous 12 months. If at any point that running total exceeds £90,000, you have 30 days from the end of the month in which you went over the threshold to register for VAT.
For example, if your taxable sales from 1 May 2024 to 30 April 2025 total £92,000, you must notify HMRC and register by 31 May 2025.
How to Keep a Log of Your VAT Threshold Limit
- Use MTD-compliant accounting software
Cloud platforms such as Xero, QuickBooks or FreeAgent automatically track rolling turnover and alert you as you approach the threshold. - Monthly turnover reviews
Schedule a short review each month to confirm your year-to-date taxable sales. - Set calendar reminders
Create alerts when you reach 75% and 90% of the threshold to prepare for potential registration. - Maintain a manual spreadsheet
If you prefer low-cost methods, record each invoice date and net value, then sum the last 12 months to check your total. - Document non-standard transactions
Note any one-off sales or adjustments that could unexpectedly push you over the limit.
What to Do If Your Business Exceeds the VAT Threshold
- Notify HMRC within 30 days of exceeding £90,000.
- Register online via the HMRC VAT portal.
- Decide on a VAT accounting scheme, for example standard or flat-rate.
- Issue VAT invoices from the date of registration using your VAT number.
- Adjust your pricing or inform customers of the new VAT charge.
Failure to register on time can lead to penalties and backdated VAT liabilities.
Business Owner and Company Director Responsibilities
Directors and business owners must ensure the company:
- Keeps accurate VAT records for both input tax (on purchases) and output tax (on sales).
- Retains all VAT invoices, receipts and digital records for six years.
- Submits VAT returns online under Making Tax Digital (MTD) every quarter.
- Pays VAT to HMRC by the due date.
Neglecting these duties risks financial penalties, interest charges and potential reputational damage.
What to Do Once You Are VAT Registered
- Charge VAT to your customers at the correct rate—standard (20%), reduced (5%) or zero (0%).
- Account for output VAT on your sales and input VAT on business purchases.
- Submit VAT returns online every quarter using your MTD-compliant software.
- Pay your VAT liability by the deadline to avoid late-payment surcharges and interest.
Maintaining digital records throughout the period is a legal requirement under Making Tax Digital.
Advantages of VAT Registration for Small Businesses
- Reclaim input VAT on costs such as equipment, stock and services.
- Enhanced credibility; VAT registration can signal higher turnover to customers and suppliers.
- Access to VAT-specific schemes, such as the flat-rate scheme, which may simplify accounting.
- Better cash-flow management, as you can time purchases and sales for optimal VAT recovery.
Costs of Being VAT Registered
- Additional administration: more detailed record-keeping and quarterly returns.
- Potential cash-flow gap: you collect VAT from customers but must pay HMRC, which could create timing shortfalls.
- Price increases: you may need to add VAT to your prices, affecting competitiveness.
- Professional fees: many businesses engage an accountant to manage compliance and returns.
Staying on top of the VAT threshold and your registration obligations is vital for small businesses. Whether you use cloud accounting software or manual tracking, a clear system ensures you register in good time, meet your Making Tax Digital requirements and avoid penalties. At Taxwise Accountancy we specialise in guiding small businesses through VAT registration, compliance and digital record-keeping. Contact us today to find out how we can support your growth.
