Guide · VAT
UK VAT Registration 2026/27: Threshold, Schemes and How to Register
VAT is often the first major administrative hurdle for a growing UK business. Once your taxable turnover crosses £90,000in any rolling 12-month period, registration is mandatory and the clock starts ticking — you have just 30 days to notify HMRC. Miss the deadline and you face a penalty on all the VAT you should have collected, even if customers never paid it separately. But registration is not always something to dread: voluntary registration can let you reclaim input VAT on your costs, signal professional credibility and, through the Flat Rate Scheme, sometimes generate a modest cash advantage. This guide walks through the threshold calculation, voluntary vs mandatory registration, the main VAT accounting schemes (Flat Rate, Annual Accounting, Cash Accounting), Making Tax Digital requirements, worked examples and HMRC's penalty regime.
Key VAT figures — 2026/27
- Mandatory registration threshold: £90,000 (rolling 12 months)
- Deregistration threshold: £88,000
- Registration deadline: 30 days after month-end when threshold crossed
- Standard VAT rate: 20%
- Reduced rate: 5% (domestic energy, children's car seats, stop-smoking products)
- Zero rate: 0% (most food, books, children's clothing)
- Making Tax Digital: mandatory for all VAT-registered businesses since April 2022
How the £90,000 threshold works
The VAT registration threshold has been frozen at £90,000 since April 2024 — and the government has indicated it will remain frozen until at least April 2028. This freeze means that inflationary growth alone is pulling more small businesses across the threshold each year, even without real business growth.
The threshold operates on a rolling 12-month basis, not on your accounting year or the April-to-April tax year. At the end of every calendar month, you should check the total of your VAT-taxable supplies over the preceding 12 months. If that total has passed £90,000 at any point, you have an obligation to register. "Taxable supplies" includes standard-rated (20%), reduced-rated (5%) and zero-rated (0%) sales — but not exempt supplies (residential rent, insurance, education, financial services etc.) or supplies outside the scope of UK VAT.
There is also a forward-looking test: if at any point you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone (for example, you have just signed a large contract), you must register immediately — not wait until the end of the month.
Worked example: Jane the freelance consultant
Jane runs a freelance IT consultancy. Her monthly turnover for the rolling 12 months to 31 March 2027:
- April–September 2026: £5,500/month = £33,000
- October–March 2027: £9,500/month = £57,000
- Rolling 12-month total at 31 March 2027: £90,000 — threshold reached.
Jane must notify HMRC by 30 April 2027 and her effective registration date will be 1 May 2027. From that date she must charge VAT on all her invoices.
How to register for VAT
Most businesses register online via the HMRC "Register for VAT" service at GOV.UK. You will need your Government Gateway ID, business details (name, address, nature of business), bank account details, and details of your estimated taxable turnover. Registration normally takes 3–4 weeks, after which HMRC issues your VAT registration certificate (VAT4) showing your VAT registration number (format: GB followed by 9 digits, e.g. GB 123456789).
Once registered you must:
- Charge VAT (output VAT) on all taxable supplies from your effective registration date.
- Issue VAT invoices to VAT-registered customers who request them.
- Submit VAT returns (usually quarterly) using MTD-compatible software.
- Pay the net VAT (output tax minus input tax) to HMRC by the deadline (usually one month and seven days after the quarter end).
- Keep digital VAT records as required by Making Tax Digital.
Input VAT vs output VAT
Output VAT is the VAT you collect from customers on your sales. Input VATis the VAT you pay to suppliers on your business purchases. Each VAT return, you calculate the difference:
VAT payable to HMRC = Output VAT charged − Input VAT reclaimed
If input VAT exceeds output VAT in a period (common for businesses with high purchase costs or zero-rated sales), HMRC owes you a repayment. This is one of the main advantages of voluntary registration for businesses with large input VAT — particularly construction, manufacturing and zero-rated food producers.
Input VAT can only be reclaimed if the purchase is used for the purposes of your VAT-taxable business activities. You cannot reclaim input VAT on: entertainment of customers, private use of a business car, or purchases relating to exempt supplies. Input VAT on assets used partly for business and partly privately must be apportioned.
VAT Flat Rate Scheme (FRS)
The Flat Rate Scheme is available to businesses with VAT-inclusive turnover of £150,000 or less. Instead of calculating actual input and output VAT, you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover. The rates vary by business sector:
| Business sector | FRS rate |
|---|---|
| Accountancy or book-keeping | 14.5% |
| Computer and IT consultancy | 14.5% |
| Management consultancy | 14% |
| Architect, civil and structural engineer | 14.5% |
| Legal services | 14.5% |
| Advertising | 11% |
| Catering, including restaurants and takeaways | 12.5% |
| Retail (not food, newspapers or children's clothing) | 7.5% |
| Hairdressing or other beauty treatment services | 13% |
| General building or construction services | 9.5% |
| Farming or agriculture (not processing) | 6.5% |
| Limited cost trader (any sector) | 16.5% |
The benefit of the FRS is that you keep the difference between the 20% VAT you charge and the lower FRS rate you pay HMRC. However, since April 2017 the "limited cost trader" rule has reduced this benefit significantly: if your goods costs are less than 2% of your gross turnover (or £1,000 per year), you must use a 16.5% FRS rate — leaving only a 3.5 percentage point gain instead of a larger sector-rate advantage.
Worked example: Jane on standard rate vs FRS
Jane's annual figures: Gross turnover (VAT-inclusive) £114,000 (i.e. £95,000 net + £19,000 VAT). She buys only software subscriptions: £600/year + £120 VAT.
Standard VAT accounting:
- Output VAT: £19,000
- Input VAT reclaimed: £120
- Net payable to HMRC: £18,880
Flat Rate Scheme (IT consultancy at 14.5%):
- FRS payment: £114,000 × 14.5% = £16,530
- FRS saving vs standard: £18,880 − £16,530 = £2,350 benefit
But Jane's goods costs (£600) are less than 2% of her gross turnover (£114,000 × 2% = £2,280), making her a limited cost trader at 16.5%:
- Limited cost trader FRS: £114,000 × 16.5% = £18,810
- Saving vs standard: £18,880 − £18,810 = only £70
For Jane, the FRS offers minimal benefit due to the limited cost trader rule. Standard VAT accounting with input VAT reclaim is broadly equivalent.
Annual Accounting Scheme
The Annual Accounting Scheme lets businesses with a taxable turnover up to £1.35 million submit just one VAT return per year rather than four. You make advance payments throughout the year — either nine monthly instalments of 10% of your previous year's VAT liability, or three quarterly instalments of 25%. A balancing payment (or repayment) is made when the annual return is filed. This scheme reduces the admin burden significantly and helps cash flow planning, but it can mean you hold money for HMRC longer if your business grows, and you cannot request repayments until the annual return is filed.
Cash Accounting Scheme
Under the Cash Accounting Scheme (available up to £1.35 million turnover), you account for VAT based on cash received from customers and cash paid to suppliers — not on invoice dates. This means you avoid paying VAT to HMRC before your customers have paid you, and you automatically get bad debt relief if a customer never pays. The trade-off: you can only reclaim input VAT when you have actually paid your suppliers, which can delay reclaiming VAT on large purchases. Cash accounting is particularly useful for businesses that give extended payment terms to customers.
Making Tax Digital for VAT
Since April 2022, MTD for VAT applies to every VAT-registered business without exception. You must:
- Keep VAT records digitally (not on paper spreadsheets unless bridging software is used).
- Submit VAT returns directly from MTD-compatible software to HMRC's API.
- Maintain digital links between source data and return figures — no manual re-keying of totals.
HMRC-recognised MTD software includes Xero, QuickBooks Online, Sage 50/Accounting, FreeAgent, KashFlow and many others. Bridging software exists that reads data from a spreadsheet and submits it digitally — though pure spreadsheet records without bridging are not MTD-compliant. Penalties for MTD non-compliance start at £400 per return submitted outside the MTD rules.
Deregistration: the £88,000 threshold
You may apply to deregister from VAT if you reasonably believe your taxable turnover in the next 12 months will be below £88,000. The deregistration threshold is intentionally lower than the registration threshold to prevent businesses constantly crossing the line. You must also deregister if you stop making taxable supplies — for instance, if you sell or close the business.
On deregistration, HMRC treats you as having made a deemed supply of all business assets (stock, equipment, vehicles) on which input VAT was claimed. If the notional VAT on those assets exceeds £1,000, you owe output VAT on them. Plan deregistration carefully if you hold significant inventory or capital equipment.