VAT registration: 2026/27
VAT Registration 2026/27: £90,000 Threshold + Worked Examples
Complete guide to UK VAT registration in 2026/27. £90,000 mandatory threshold (raised from £85k in April 2024), £88,000 deregistration threshold, 30-day registration deadline after crossing, rolling 12-month vs forward 30-day tests, voluntary registration cost/benefit by customer type (B2B usually wins, B2C usually loses), Flat Rate Scheme decision post-2017 Limited Cost Trader rules, MTD VAT mandatory since April 2022.
2026/27 VAT key figures
Registration threshold
£90,000
Mandatory if rolling 12-month turnover exceeds this. Register within 30 days.
Deregistration threshold
£88,000
Eligible to deregister if next-12-month turnover under this. Optional.
Standard VAT rate
20%
Held since January 2011. Reduced 5%, zero 0%, exempt for some sectors.
The two registration tests
Backward look (rolling 12 months)
At the end of EACH month, check if total taxable turnover for the LAST 12 MONTHS exceeds £90,000. If yes:
- Register within 30 days of month-end
- Effective from 1st day of 2nd month after threshold crossed
- Example: turnover £92k for June 2025-May 2026 measured end of May 2026 → register by 30 June 2026 → effective 1 July 2026
Forward look (next 30 days)
At ANY point, if you EXPECT taxable turnover in the NEXT 30 days alone to exceed £90,000:
- Must register IMMEDIATELY (within 30 days of expectation arising)
- Effective from the date the expectation arose
- Common trigger: signing a £100k+ contract
- No "wait and see" - 30-day window starts immediately
4 worked business scenarios
| Business | Turnover | Customer | Must register? | Net impact |
|---|---|---|---|---|
| Sub-threshold consultant Under £90k → not required to register. B2C → voluntary registration would HURT margin. | £70,000 | B2C | Optional | Best left unregistered - voluntary registration would erode B2C margin |
| Just over threshold Over £90k → MUST register within 30 days. £15,833 VAT due on first £95k = significant margin hit. | £95,000 | B2C | MUST register | B2C: VAT comes out of margin (~16.7% revenue loss unless prices raised) |
| B2B consultant - voluntary Under threshold but B2B clients reclaim VAT → voluntary registration recovers input VAT on purchases. | £60,000 | B2B | Voluntary | Voluntary B2B: recovers input VAT on purchases (typical 5-15% of turnover) at no customer-price cost |
| Growing B2B SaaS Far over threshold. £41,667 VAT collected. Net VAT after input recovery typically £35-40k payable. | £250,000 | B2B | MUST register | B2B: customer reclaims VAT - no net impact on price competitiveness |
B2B vs B2C - the voluntary registration question
The decision to register voluntarily (when under £90,000) depends almost entirely on your customer base.
B2B: voluntary registration usually wins
- B2B customers reclaim the VAT you charge them → price stays competitive
- You recover INPUT VAT on purchases: 5-15% of turnover typically
- £60k turnover B2B SaaS: ~£3-9k/year of recovered VAT for £0 customer-price impact
- Signals professional / scale to enterprise customers
B2C: voluntary registration usually loses
- B2C customers can't reclaim VAT → 20% on top either erodes margin or loses customers
- £60k turnover B2C retailer: £10k VAT either absorbed (cuts margin) or passed through (£12k higher prices vs competitors)
- Input VAT recovery (5-15%) rarely offsets the customer-price hit
- Best practice: stay unregistered until forced at £90k
Flat Rate Scheme - mostly dead post-2017
The Flat Rate Scheme (FRS) lets businesses under £150,000 pay HMRC a flat % of gross VAT-inclusive turnover instead of accounting for VAT in/out separately. Sounded simple - but the April 2017 "Limited Cost Trader" (LCT) rule killed the maths for most service businesses.
Limited Cost Trader test: if your goods costs in a VAT period are less than 2% of turnover OR less than £1,000/year, you're an LCT and must use the 14.5% flat rate (highest in the scheme). Most consultants / IT / SaaS / professional services qualify as LCT - their "goods" purchases (physical inventory) are near zero. At 14.5% flat rate on gross VAT-inclusive turnover, you pay MORE VAT than under the standard scheme where you'd recover input VAT. The 1pp first-year discount drops LCT to 13.5% in year 1 - still uncompetitive vs standard scheme for most businesses.
FRS still wins for: pure trading businesses with goods costs above 2% of turnover (retailers, hospitality, food production) at lower flat rates like 6-9%; very simple businesses where the admin saving from not tracking input VAT outweighs the slightly higher rate; first-year businesses claiming the 1pp discount. For everyone else, standard VAT scheme is the answer. See our VAT Flat Rate Scheme guide for the full sectoral rate table.
Frequently asked questions
What is the UK VAT registration threshold for 2026/27?
£90,000 of UK taxable turnover in a rolling 12-month period. Raised from £85,000 to £90,000 on 1 April 2024 (Spring Budget 2024) - the first VAT threshold rise since April 2017. Confirmed frozen at £90,000 through April 2026 minimum. If your taxable turnover EXCEEDS £90,000 in any rolling 12-month window, you MUST register for VAT within 30 days from the end of the month in which the threshold was crossed. Registration must be effective from 1st day of the SECOND month after the threshold was crossed. Failing to register on time triggers penalties + backdated VAT liability on sales since the registration should have happened. The threshold applies to "taxable turnover" - VATable sales (standard 20%, reduced 5%, zero-rated 0%) but NOT exempt sales (financial services, education, healthcare, postage stamps, etc.).
When exactly do I have to register? The 30-day rule
Two distinct triggers (Section 2 + Schedule 1 VATA 1994). (1) Backward look: at the end of every month, check if your taxable turnover over the LAST 12 MONTHS exceeds £90,000. If yes - register within 30 days from the end of that month. Registration takes effect from the 1st day of the SECOND month after. Worked example: 31 May 2026 you check and turnover for June 2025 - May 2026 = £92,000. Register by 30 June 2026. VAT registration effective 1 July 2026. (2) Forward look: at any point, if you expect taxable turnover in the NEXT 30 DAYS ALONE to exceed £90,000, you must register IMMEDIATELY (within 30 days of the expectation). Effective from the date the expectation arose. Common for one-off big project wins - signing a £100k contract triggers immediate VAT registration. Online registration at gov.uk/register-for-vat takes 2-4 weeks for HMRC approval; VAT number issued retrospectively to the effective date.
What happens if I miss the registration deadline?
HMRC backdates VAT liability to the date you SHOULD have been registered. You owe VAT on all sales from that date, even though you didn't charge customers VAT at the time (because you weren't registered). This usually means VAT comes out of YOUR MARGIN - you can rarely go back to customers months later and demand 20% extra. Worked example: should have registered 1 July 2026 but didn't realise until 1 January 2027. Six months of sales without VAT - £50,000 of B2C revenue, say. VAT owed at standard rate = £50,000 / 1.20 × 0.20 = £8,333 of VAT now due to HMRC, taken out of your bank account. Penalty: 5%-15% of the VAT due depending on disclosure timing and HMRC's view of "reasonable excuse". Late registration is one of HMRC's highest-enforcement areas - they actively monitor for it via Companies House filings + bank account data + customer invoices. The "I didn't realise" defence rarely works after the first £5k of unreported VAT.
Should I register voluntarily before hitting the threshold?
Depends on your customer base. B2B customers: voluntary registration is often the right move. Your B2B customers reclaim the VAT you charge them, so the price they pay effectively stays the same. You benefit from RECOVERING INPUT VAT on your purchases (software subscriptions, equipment, office costs) - typically 5-15% of turnover. Voluntary registration adds £3-15k/year of recovered VAT for many consultant / B2B SaaS founders. B2C customers: voluntary registration is usually a mistake. B2C customers can't reclaim VAT, so charging 20% on top either erodes your margin (you absorb the VAT) or makes you 20% more expensive than unregistered competitors (you lose customers). Stay unregistered until forced. Mixed customer base: depends on the split. >70% B2B = register voluntarily; >70% B2C = don't. Middle ground = case-by-case. Pre-launch or growth businesses: register voluntarily if you expect to cross the threshold within 6-12 months anyway - simpler than transitioning later.
What is the deregistration threshold?
£88,000 - if your taxable turnover for the NEXT 12 months will be UNDER this, you can apply to deregister. The deregistration threshold is set £2,000 below the registration threshold deliberately, to prevent businesses bouncing in and out of registration each year as turnover fluctuates around the £90,000 line. Deregistration is OPTIONAL not mandatory - some businesses choose to remain registered post-deregistration-eligibility for the input VAT recovery benefit (mostly relevant for B2B). Form VAT7 to apply for deregistration. Effective from the date HMRC approves (usually 14-21 days). On deregistration: file final VAT return, account for VAT on assets held at deregistration if their total value exceeds £6,000 (Section 8 VATA 1994 - prevents pre-deregistration asset hoarding). Common reason to deregister: business shifting from B2C to B2B or vice versa, semi-retirement reducing turnover, planned business sale.
What is the Flat Rate Scheme and should I use it?
Flat Rate Scheme (FRS) is an OPTIONAL simplification for small businesses turning over under £150,000. Instead of accounting for VAT in/out separately, you pay HMRC a FLAT PERCENTAGE of your gross VAT-inclusive turnover. Rates vary by trade: 4% to 14.5%. Example flat rates: 14.5% for Limited Cost Trader (LCT - businesses with goods costs under 2% of turnover, includes most consultants/IT/services), 12% for IT consultants below the LCT threshold, 11% for accountancy, 10% for management consultancy, 14% for solicitors. First-year discount: 1pp off your normal flat rate. The LCT category effectively ended the FRS advantage for most service businesses (introduced April 2017 specifically to close the loophole). FRS is mainly attractive now for: pure-trading businesses (retailers, restaurants) with normal flat rates around 6-9%; businesses with very low input VAT; first-year businesses claiming the 1pp discount. For consultant/IT/SaaS businesses, normal VAT scheme almost always wins after the 2017 changes.
Is Making Tax Digital (MTD) for VAT mandatory?
Yes - mandatory for ALL VAT-registered businesses since April 2022 (originally applied only to businesses over the threshold from April 2019). All VAT returns must be filed through HMRC-approved MTD software (FreeAgent, Xero, QuickBooks, Sage, Bokio, Pandle, etc.) - no more manual entry on the gov.uk portal. Digital records must be maintained for: each invoice line, VAT amount, supplier / customer name, date. "Digital links" must exist between accounting records and VAT return submission - copy-pasting between spreadsheets is allowed but a "tick-and-bash" workflow (manually re-keying figures) is not. Most cloud accounting software handles all this automatically. Free or low-cost options: Pandle (free), Bokio (free), HMRC's free record-keeping app (limited functionality). Penalty for non-MTD-compliant filing: £100 per quarter for the first non-compliant return + £200 for repeat. Most businesses use £20-50/month software which more than pays for itself in time saved + compliance.
What are the VAT rates in the UK for 2026/27?
Standard rate 20%: most goods and services. Reduced rate 5%: domestic fuel and power, residential property renovations (specific qualifying conversions), women's sanitary products, child car seats, mobility aids for the elderly, energy-saving materials in residential, some children's products. Zero rate 0%: most food (not catering), children's clothes and shoes, books and newspapers (printed + e-books since May 2020), prescription medicines, residential property (new builds), public transport (bus / train fares), exports outside the UK. Exempt (not the same as zero-rated): financial services, insurance, education, healthcare, postage stamps, betting, burial services, land sales (with option-to-tax exception). The 20% standard rate has held since January 2011 (Coalition government raise from 17.5%). Industry lobbying for a permanent 5% rate on hospitality (during COVID it was temporarily 5%, now back to 20%) has not succeeded.
How do VAT returns work?
VAT returns are quarterly by default (some businesses can elect monthly or annual). Each quarter you account for: Output VAT = VAT charged on sales (your liability to HMRC). Input VAT = VAT paid on purchases (your reclaim from HMRC). Net VAT payable = Output - Input. Worked example: Q1 sales £30,000 + 20% VAT = £36,000 received from customers. Q1 purchases £8,000 + £1,600 VAT = £9,600 paid out. Output VAT: £6,000. Input VAT: £1,600. Net VAT due to HMRC: £4,400. File via MTD software within 1 month + 7 days after the quarter end. Pay by direct debit (most common) or BACS / FasterPayment. Late filing penalty: £200 for first late return + escalating. Late payment penalty: 2.75% interest p.a. + 5% surcharge after 30 days late. Most businesses use direct debit which automatically pulls payment on the 12th of the month after the return deadline - effectively a 5-week "free credit" from HMRC.
Can I split my business to stay under £90k?
Carefully. HMRC's "artificial separation of business activities" anti-avoidance rules (Section 67 VATA 1994) can re-aggregate split businesses if the split is purely tax-motivated. Three tests HMRC applies: (1) genuine commercial / financial / organisational separation, (2) separate ownership and control (different legal entities, separate banking, distinct management), (3) different customer bases or product lines (not just splitting the same customers between two entities). LEGITIMATE separation: husband runs limited company offering IT consultancy, wife runs separate sole trader offering web design - genuinely different products + different brands + separate accounts. HMRC accepts. ILLEGITIMATE separation: same business split into two limited companies, both serving same customers, both controlled by same person, with the split purely to keep each under £90k. HMRC will challenge and re-aggregate for VAT - often combined with backdated VAT liability + penalty. Pre-2024 the £85k threshold made splitting more tempting; at £90k the marginal benefit has narrowed.
What about VAT on services to / from EU and Rest of World?
Post-Brexit (since January 2021) the UK treats EU and Rest of World identically for VAT purposes. Services TO non-UK customers: generally zero-rated under "place of supply" rules - charge no VAT, customer self-accounts via reverse charge in their country. Exception: digital services to EU consumers (B2C) require One Stop Shop (OSS) registration. Services FROM non-UK suppliers: reverse charge - YOU as the UK customer account for the VAT on your return as both output AND input VAT (net zero impact if you can reclaim full input VAT). Goods exported FROM UK: zero-rated. Goods imported TO UK: import VAT applies (postponed VAT accounting available for VAT-registered businesses). NI follows different rules under the Windsor Framework - NI-EU goods movements stay within EU VAT system. Most digital service businesses face surprisingly little admin overhead from international transactions once the reverse-charge mechanism is set up properly in accounting software.
What records do I need to keep for VAT?
Section 5 + Schedule 11 VATA 1994. Keep for at least 6 years: Sales records: VAT invoices issued, including invoice number, date, customer name + address, description of goods/services, amount excluding VAT, VAT amount, VAT rate, total including VAT. Purchase records: all VAT invoices received from suppliers (you must have the original VAT invoice to reclaim input VAT - HMRC will disallow claims without supporting invoices). VAT account: monthly summary of output VAT, input VAT, net VAT payable. Quarterly VAT return submissions. Imports and exports records: customs declarations, EORI numbers. Mixed supplies records: if you have both VATable and exempt sales, partial-exemption calculations. All records must be in DIGITAL form under MTD VAT rules. HMRC's typical VAT enquiry: ~1 in 50 quarterly returns gets selected for spot-check, mostly focused on input VAT claims (HMRC's biggest revenue risk area). Have invoices ready - 95% of enquiries close cleanly with proper documentation.
Related VAT tools and guides
- VAT calculator - add / remove VAT at any rate.
- VAT registration guide - narrative deep-dive on registration mechanics.
- VAT Flat Rate Scheme guide - sectoral rate table + LCT mechanics.
- UK VAT rates guide - standard / reduced / zero / exempt categories.
- MTD ITSA guide - similar MTD framework coming to Income Tax.
- Sole Trader vs Limited Company - VAT registration affects the structure decision.
- Optimum director salary 2026/27 - LTD-company personal extraction strategy.
- Side hustle tax calculator - the smaller-turnover end of the business spectrum.