Who must register for VAT in the UK?
Any business making taxable supplies above the £90,000 threshold over any rolling 12-month period must register for VAT with HMRC. "Taxable supplies" means standard-rated, reduced-rated and zero-rated goods and services — not exempt supplies (e.g. most financial services, postal services, certain education).
The registration obligation is personal to the legal entity doing the trading, not the individual. A sole trader and a limited company owned by the same person are two separate VAT entities; each has its own £90,000 threshold.
The two HMRC threshold tests
HMRC applies two tests — you must register under whichever triggers first:
- Rolling 12-month test. At the end of any month, if your total taxable turnover for the last 12 months exceeds £90,000, you must register within 30 days of the end of that month.
- Next 30 days test. If you expect the taxable turnover of the next 30 days alone to exceed £90,000, you must register immediately — before the 30 days elapse.
A freelancer with steady £7,500/month turnover has rolling turnover of £90,000. At the end of that month, they must register by the end of the following month. If they instead win a £100,000 contract to be delivered in the next 30 days, they must register before starting work — even though their rolling turnover hasn't exceeded the threshold yet.— GoForma technical team, 2025/26 tax year modelling
What counts towards the threshold
- Included: standard-rated, reduced-rated and zero-rated sales; most services to UK customers; reverse-charge services received from overseas.
- Excluded: VAT-exempt supplies, supplies outside the scope of UK VAT (e.g. services to overseas businesses under the general rule), capital asset disposals.
- Common pitfall: zero-rated sales (e.g. most children’s clothing, books, food) still count towards the threshold even though the VAT rate is 0%. Many businesses wrongly assume they only need to count standard-rated sales.
Should you register voluntarily?
Registering voluntarily below £90,000 is common when most of your customers are VAT-registered businesses. They can reclaim the VAT you charge them, so it doesn’t cost them anything — and you can reclaim VAT on your own business purchases (software, equipment, professional services).
Voluntary registration is less attractive when:
- Most of your customers are consumers or VAT-unregistered businesses — your prices effectively rise 20% relative to a non-registered competitor.
- You have minimal input VAT to reclaim (e.g. a pure-services business with low overheads).
- You’d need to do quarterly Making Tax Digital returns — added admin and accountancy cost.
The VAT schemes worth knowing about
| Scheme | Who it’s for | Key benefit |
|---|---|---|
| Standard VAT | Most businesses by default | Full input VAT reclaim on all purchases |
| Flat Rate Scheme | Businesses with turnover under £150,000 | Simplified — charge 20%, pay a flat rate (e.g. 14.5% for IT contractors) |
| Cash Accounting | Businesses under £1.35m turnover | Pay VAT only when customers pay you (helps cash flow) |
| Annual Accounting | Businesses under £1.35m turnover | One return per year instead of four; monthly instalment payments |
| Margin schemes | Second-hand goods, antiques, art dealers | VAT charged on margin only, not full price |
Late-registration penalties
Miss the 30-day registration window and HMRC applies a late-registration penalty — typically 5% to 15% of the VAT you should have charged, depending on how long you were unregistered. Plus you’re still liable for the VAT on all supplies from the date you should have registered, which you probably didn’t charge to your customers. This creates an instant retrospective cost of up to 16.67% of the unregistered turnover.