Crossing the VAT Threshold: What to Do Before You Hit £90,000 Turnover

The UK VAT registration threshold is £90,000 for the 2026/27 tax year. Once your rolling 12-month taxable turnover goes over that line, you usually have 30 days from the end of the month in which you crossed it to notify HMRC. Your VAT registration then normally takes effect from the first day of the second month after you went over the threshold.

The threshold has been £90,000 since 1 April 2024, and the deregistration threshold is £88,000. If you are a growing business sitting in the high £70,000s or low £80,000s, the next few months could decide whether VAT becomes a planned step or an expensive surprise.

This guide walks you through how the rules work, what you should do before you cross the line, how to choose the right VAT scheme and the most common mistakes business owners make on the way past £90,000.

The threshold rules at a glance

It pays to keep the headline numbers in front of you while you read the rest. The key figures for the current tax year are summarised below.

If you are not certain where your numbers sit today, your bookkeeping is the first place to look. As experienced accounting firms in Nottingham we see plenty of business owners only discover their position after a bumper quarter, and by then the clock is already running.

How the rolling 12-month test really works

The single biggest misunderstanding around VAT is the period HMRC actually tests. It is not your accounting year, it is not your tax year and it does not reset on 6 April. The test is a rolling 12-month window that moves forward at the end of every calendar month.

In practice, that means you should check your previous 12 months of taxable turnover at the end of every month, not once a year at year end. If your taxable turnover goes over £90,000 in any rolling 12-month period ending in the current month, you must notify HMRC within 30 days of the end of that month. Your effective date of registration is normally the first day of the second month after the breach.

Example. At the end of August 2026, your taxable turnover for the 12 months to 31 August is £91,200. You must notify HMRC by 30 September 2026, and your VAT registration normally takes effect from 1 October 2026. Even if HMRC takes a few weeks to issue your VAT number, you are liable for VAT from 1 October.

This is exactly the kind of figure that gets lost when your records are scattered or out of date. Our why accurate bookkeeping is crucial post explains why a tidy daily process pays for itself many times over, and our bookkeeping health check flags the gaps before they become VAT problems.

The forward look test that catches people out

Most owners eventually find the rolling 12-month rule. Far fewer know about the forward look test. This rule says you must register if you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone.

The trigger is not the moment cash lands in your account. It is the moment you have reasonable grounds to expect the taxable turnover.

If you sign a contract on 10 June 2026 that will deliver £92,000 of taxable supplies in the next 30 days, your effective date of registration is 10 June 2026. You must notify HMRC by the end of that 30-day period, and you need to account for VAT on taxable supplies from 10 June onwards.

This is the rule that catches consultants landing a big project, agencies onboarding a sizeable new client and tradespeople taking on a large commercial job. If you are negotiating something that could push you over on its own, get advice before you sign. Our bookkeepers Nottingham team will model the impact before the contract is finalised so the VAT does not eat into your margin.

What counts as taxable turnover

Not every penny that hits your bank account counts. Taxable turnover is the value of your VAT taxable supplies. This includes standard-rated, reduced-rated and zero-rated goods and services. Exempt supplies and supplies that are outside the scope of UK VAT do not usually count.

A few pointers that come up often:

• Zero-rated sales still count even though no VAT is charged.
• Exempt supplies such as certain financial services and many residential property lettings do not count.
• One-off asset sales can count if they are taxable supplies.
• For a sole trader, all your business activities count together under one £90,000 threshold. You do not get a separate allowance for each trade.
• For partnerships and limited companies, the taxable person is the entity, so the entity’s total taxable turnover is what matters.

Agencies and resellers who pass through client costs need to be particularly careful. If you act as principal, the full value of the supply can count towards the threshold, even if your margin is small. If you act as agent, only your fee may count. Getting this wrong can push a business well over the line without the owner realising.

If your business is property-related, this is where things get nuanced. Residential lettings are generally exempt, but commercial property, holiday accommodation and certain other property activities can have different VAT treatment. Our accountants for landlords team handle the VAT treatment for mixed portfolios and can walk you through the option to tax where it makes sense.

Should you register voluntarily before you have to?

Compulsory registration only kicks in at £90,000, but you can voluntarily register at any turnover level if you make taxable supplies. The maths is rarely emotional, so it pays to look at it cleanly.

Voluntary registration tends to help when:

• Your customers are mostly VAT-registered businesses who can reclaim the VAT you charge.
• You have significant input VAT on your costs, such as equipment, software or professional fees.
• You want to project a more established image to larger B2B clients.
• You are about to invest heavily in setup costs and want to reclaim VAT where the rules allow it.

Voluntary registration tends to hurt when:

• Your customers are consumers who cannot reclaim VAT, which can mean a price rise or a margin hit.
• Your input VAT is minimal because most of your costs are wages or VAT-exempt supplies.
• You make a mix of taxable and exempt supplies, which can restrict what you reclaim under partial exemption rules.

For new ventures planning growth that will breach the threshold within a year or two, voluntary registration can be the smarter move because it spreads the operational learning. As one of the more experienced accountants for start ups in the East Midlands we run the numbers both ways before recommending a path. Our broader accounting for startups uk service includes VAT planning as standard, alongside the wider business setup work covered in our sole trader versus limited company guide.

Choosing the right VAT scheme

Registration is not the end of the decision. You also choose how you account for VAT. The main schemes are summarised below.

The Flat Rate Scheme deserves a careful look because the limited cost trader test traps many service businesses on the 16.5% rate, which often removes the saving. Under the Flat Rate Scheme, you also cannot reclaim VAT on most purchases, except certain capital assets over £2,000. Run the maths before joining.

Our piece on allowable expenses for limited companies covers the costs side and helps you understand whether you fall in or out of the limited cost trader definition.

Once you are registered, VAT submissions generally need to go through Making Tax Digital compatible software unless HMRC grants an exemption. Our VAT in Xero guide walks through the setup, and our Xero bookkeeping basics post covers the foundations. If you are still on spreadsheets, our from spreadsheets to Xero walkthrough is the easiest place to start.

Pricing decisions when you cross the threshold

This is the bit owners worry about most, and rightly so. The 20% VAT you need to charge from your effective date of registration creates a hard choice if your customers are not VAT registered:

• Add VAT on top of your current prices and risk losing some business to competitors who stay just under the threshold.
• Keep customer-facing prices the same and absorb VAT inside your existing price, reducing your margin.
• Land somewhere in between with a partial price rise.

The right answer depends on your market, your competitors and how sensitive your customers are to price changes. The one universal rule is that you cannot pretend the cost away.

Plan the conversation with customers before your effective date, communicate clearly and consider phasing changes where contracts allow. If you sell B2B, the rise is often less of an issue because your customers may be able to reclaim VAT. If you sell B2C, expect more friction.

HMRC and OBR data have shown bunching of businesses just below the VAT threshold, which tells you how many owners hold back rather than cross. That may be rational for some, but it can also quietly cap a business that should otherwise be scaling. A clean set of management accounts that directors use will tell you which side of the line your numbers actually justify.

The exception from registration option

Crossing £90,000 does not always force you to register permanently. HMRC allows you to apply for an exception if you can demonstrate that your taxable turnover will not exceed the £88,000 deregistration threshold in the 12 months after the breach.

This is useful where a one-off contract, an early payment from a customer or a non-recurring asset sale pushes you over temporarily. You still have to notify HMRC of the breach, but you ask for the exception at the same time.

HMRC currently asks businesses to contact them to request form VAT1 and form VAT5EXC when applying for exception from registration. HMRC will want evidence that the excess is genuinely temporary. A short paragraph and a hopeful look will not be enough.

If you are in this position, document the reason for the spike, the order book that proves the run rate is lower and any seasonality that supports the case. Our HMRC VAT inspections piece sets out what HMRC looks for in supporting evidence more generally.

Common mistakes to avoid

A handful of slips appear again and again on late or rejected applications:

• Watching annual turnover instead of the rolling 12-month taxable turnover figure.
• Forgetting that zero-rated sales count toward the threshold.
• Splitting a business artificially to avoid the threshold, which HMRC can challenge under disaggregation rules.
• Assuming a delay in your VAT number means you do not have to account for VAT yet.
• Choosing the Flat Rate Scheme without testing the limited cost trader rules.
• Missing the penalty regime for late registration, late filing or late payment. Our HMRC crackdown on late payments post is worth reading alongside this.
• Ignoring partial exemption where you sell both taxable and exempt supplies.
• Forgetting that side income may be reported through digital platform reporting. Our HMRC cracks down on side hustle income article explains why surprise turnover is harder to miss than it used to be.

If you are uncertain on any of these, a quick conversation with your accountant before the next month end is usually cheaper than the penalty.

What changes day-to-day after registration

Once you are VAT registered, several things shift inside your business:

• Your VAT invoices must show your VAT number, the VAT rate, the VAT amount and the net and gross totals.
• If you are waiting for your VAT number, you must still account for VAT from your effective date. You should not issue a VAT invoice until the number is received, but you may need to adjust pricing and issue VAT invoices once the number arrives.
• Your bookkeeping must capture VAT on every transaction. Our Xero bank reconciliation and automations in Xero articles save real time here.
• You file VAT returns through MTD compatible software unless exempt. Our Xero integrations explained piece covers add-ons that make life easier.
• You build a habit of setting aside the VAT you collect rather than treating it as ordinary cash flow.
• You think harder about supplier choices because VAT-registered suppliers let you reclaim more input VAT where the rules allow it.
• You apply MTD discipline more broadly, which is also relevant to Income Tax. Our piece on MTD quarterly update returns and our MTD quarterly reporting guide explain the wider direction.

For owner-managers who do not want to handle this in-house, our xero bookkeeping service covers day-to-day VAT bookkeeping, and our finance outsourcing services take care of the whole back office under one engagement. The wider case for delegation is set out in our benefits of outsourcing your accountant post.

Deregistration: the other side of the line

If your taxable turnover falls below £88,000 and you expect it to stay below that level for the next 12 months, you can apply to deregister. The process can usually be handled through your Government Gateway account, but it has consequences worth knowing.

You file a final VAT return for the period up to and including your deregistration date. You may also need to account for VAT on stock and business assets you keep when you deregister. This usually applies where VAT would be due on those assets and the total VAT due is more than £1,000.

Deregistration is most often considered after a permanent shift in trading conditions or when a business changes its legal structure. It is not a casual switch, but for the right business it can simplify admin and improve competitiveness against unregistered rivals. Our wider VAT registration for growing businesses post covers both directions of the threshold conversation.

Frequently asked questions

Is the VAT threshold based on profit or turnover?

Turnover. Specifically, taxable turnover, which includes standard-rated, reduced-rated and zero-rated supplies. Exempt supplies and outside-the-scope supplies do not usually count.

Does VAT apply from the day I notify HMRC or from a later date?

It applies from your effective date of registration. Under the rolling 12-month test, this is usually the first day of the second month after you cross the threshold. Under the forward look test, it is the date you realised your taxable turnover would exceed £90,000 in the next 30 days alone.

Can I split my business to stay under the threshold?

Not safely if the split is artificial. HMRC can use disaggregation rules to treat artificially separated businesses as a single taxable person for VAT, with backdated liability and penalties. Genuine separate entities operated independently can have their own VAT position, but the bar is high and advice is essential.

What if HMRC takes weeks to issue my VAT number?

You still owe VAT from your effective date. You should not issue a VAT invoice until you have your VAT number, but you must still account for VAT from the effective date. Many businesses adjust their pricing during the waiting period and issue proper VAT invoices once the number arrives.

How much is the penalty for registering late?

The late registration penalty is based on the net VAT due from the date you should have registered to the date HMRC receives your notification or becomes fully aware that you should be registered. The rate is 5% if you are not more than 9 months late, 10% if you are more than 9 months but not more than 18 months late, and 15% if you are more than 18 months late. The minimum penalty is £50.

Do I need new software once I register?

You need MTD-compatible software for VAT returns unless HMRC grants an exemption. If you already use Xero, you are well placed. Our 5 quick Xero tips post is a good follow-up read for new registrants.

How does the threshold interact with Making Tax Digital for Income Tax?

They are separate regimes, but the digital discipline overlaps. Many sole traders and landlords now need to think about both VAT and MTD for Income Tax obligations, so a single tidy software setup can support both. Our coverage of the wider UK Spring Budget 2026 explains how the two streams sit together.

Ready to plan your VAT position before you have to react to it

Hitting £90,000 is a milestone worth celebrating, but only if you walk into it with a plan rather than a panic. From scheme selection to pricing conversations, software setup to HMRC notifications, the cleanest journeys are always the ones started months before the threshold is breached.

Our team works with sole traders, partnerships and limited companies across Nottingham and nationwide, and we will model your position, your pricing and your scheme choice before you commit. Call us on 0115 648 8686 or get in touch through our website to book a free conversation about where you stand.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.