What Is the VAT Threshold?

The VAT threshold is the single number every growing sole trader watches most nervously. Cross it and you must start charging 20% VAT on your sales, file VAT returns, and effectively become an unpaid tax collector for HMRC. For 2026/27 that line sits at £90,000 of VAT-taxable turnover, where it has stayed since the April 2024 rise from £85,000.

How the Rolling 12-Month Test Works

The most misunderstood part of the VAT threshold is that it ignores the tax year entirely. HMRC asks you to look back over any consecutive 12 months. At the end of each month you add up your taxable turnover for the previous 12 months. The moment that figure passes £90,000, the clock starts.

There is also a second, forward-looking trigger. If at any point you realistically expect your taxable turnover in the next 30 days alone to exceed £90,000, for example because you have just won a large contract, you must register straight away without waiting for the rolling total to catch up.

"VAT-taxable turnover" means sales of goods and services that are not exempt from VAT. It includes standard-rated, reduced-rated, and zero-rated supplies, but excludes genuinely exempt items such as most insurance and some financial services.

A Worked Example for 2026/27

Imagine Tariq runs a freelance web-design business. His monthly taxable turnover for the 12 months to 31 March 2026 looks like this: eleven months at around £7,000 each, then a bumper March where he invoices £15,000 for a big project.

Adding it up, his rolling 12-month total reaches £92,000 at the end of March. He has crossed the £90,000 line. HMRC's rule is that he must register within 30 days of the end of the month in which he went over, so by the end of April 2026. His VAT registration then takes effect from the first day of the following month, 1 May 2026.

From that date Tariq must add 20% VAT to his invoices. A £1,000 design job now bills at £1,200, of which £200 is VAT he holds on HMRC's behalf. The upside is that he can reclaim the VAT on his own business costs, such as software subscriptions and his new laptop.

If Tariq misses the deadline, HMRC can register him retrospectively and demand the VAT he should have charged, even if he never collected it from clients, plus a failure-to-notify penalty.

What Happens After You Register

Once registered, you use our VAT calculator to work out what to charge and what you can reclaim. Every VAT-registered business must comply with Making Tax Digital for VAT: keeping digital records and filing returns (usually quarterly) through MTD-compatible software. There is no longer a turnover exemption from MTD for VAT.

If your turnover later drops below the £88,000 deregistration threshold, you can apply to leave the VAT register, though many traders stay registered to keep reclaiming input VAT.

“The businesses that get caught out are rarely the ones near £200,000. It is the ones hovering at £88,000 to £92,000 who forget to check their rolling total each month.”

Related terms

• VAT: the tax itself, how it is charged and reclaimed.
• VAT calculator: work out VAT to add or strip from a figure.
• TapTax blog: guides on registering, MTD for VAT, and choosing a VAT scheme.

People also ask

Does the VAT threshold include income from outside the UK?

Generally the £90,000 threshold counts UK taxable supplies. Sales that are outside the scope of UK VAT, such as certain services supplied to overseas business customers, are treated differently. The rules around place of supply are complex, so check HMRC guidance or an adviser if a large share of your work is for overseas clients.

What is the penalty for registering for VAT late?

HMRC charges a failure-to-notify penalty based on how late you register and how much VAT was due, ranging from a percentage of the unpaid tax for a careless mistake up to much higher rates for deliberate concealment. You will also owe the VAT that should have been charged from the date you crossed the threshold.

Can I split my business to stay under the VAT threshold?

Artificially splitting one business into two to keep each below £90,000 is known as disaggregation, and HMRC actively challenges it. If the parts are financially, economically, and organisationally linked, HMRC can direct that they be treated as a single business and registered for VAT.