VAT Registration for UK Companies: Thresholds, Rates and Schemes Explained

When your company must register for VAT

You must register for VAT if your total taxable turnover for the last 12 months goes over 90,000 pounds, or if you expect your taxable turnover to go over 90,000 pounds in the next 30 days. Taxable turnover means the total value of everything you sell that is not exempt from VAT. The 90,000 pound registration threshold has applied since 1 April 2024, when it rose from the previous figure of 85,000 pounds.

There are two separate tests, and it helps to treat them as distinct. The backward-looking test is a rolling 12-month check: at the end of each month you look back over the previous 12 months and add up your taxable turnover. If that running total has gone over 90,000 pounds, you must register within 30 days of the end of the month in which you crossed the line. Your effective date of registration is the first day of the second month after you went over the threshold.

The forward-looking test is triggered when you expect to cross the threshold within a single 30-day period, for example if you win a large contract. In that case you must register by the end of that 30-day period, and your effective date of registration is the date you realised the threshold would be exceeded, not the date your turnover actually goes over. A business based outside the UK that supplies goods or services to the UK may also need to register regardless of turnover.

The reason the two tests matter is that they can catch a growing company out. A steady, gradually growing business is most likely to trip the rolling 12-month test, so it pays to check your running total at the end of each month rather than waiting until your year-end accounts are prepared. A business that lands a single large order, by contrast, is more likely to trigger the forward-looking test, and here the clock starts the moment you realise the order will take you over the line. Keeping a simple monthly turnover tracker is one of the most useful habits a new company can build, because it turns VAT registration from a scramble into a planned event.

Voluntary registration and the deregistration threshold

If your taxable turnover is below 90,000 pounds you can still choose to register voluntarily. This can be worthwhile if most of your customers are themselves VAT-registered businesses that can reclaim the VAT you charge, or if you incur significant VAT on your own purchases that you would like to reclaim. Voluntary registration can also make a young company look more established to larger clients. The trade-off is more administration and, if you sell mainly to consumers, a 20 percent price effect that they cannot recover.

Registration is not permanent. If your taxable turnover falls below the deregistration threshold of 88,000 pounds you can ask HMRC to cancel your registration. This figure also changed on 1 April 2024, rising from 83,000 pounds. You must cancel within 30 days if you stop being eligible, for example because you stop trading or stop making VAT taxable supplies, or you may be charged a penalty.

After cancelling you must submit a final VAT Return covering the period up to and including the cancellation date, and you must keep your VAT records for six years. Deciding whether voluntary registration is right for your company depends on your customer base and cost profile, so it is worth modelling both scenarios before you commit.

Current UK VAT rates

There are three rates of VAT plus a category of exempt items, and knowing which applies to what you sell is essential for pricing and for completing your returns correctly. The standard rate of 20 percent applies to most goods and services and has been in place since 4 January 2011. The reduced rate of 5 percent applies to a smaller group of items, such as children's car seats and home energy.

The zero rate of 0 percent applies to goods and services such as most food and children's clothes. Zero-rated is not the same as exempt: zero-rated sales still count towards your taxable turnover and towards the registration threshold, whereas exempt items, such as postage stamps and many financial and property transactions, do not. If you sell a mix of rated and exempt supplies, your VAT position can become more complex and professional advice is sensible.

The table below summarises the three rates and typical examples. Always check the specific classification of your own products with HMRC guidance, because getting a rate wrong can lead to under-collecting or over-charging VAT.

How to register for VAT

Most companies register online through HMRC's register for VAT online service, which sets up your VAT online account, sometimes called a Government Gateway account. You will use this account to submit your VAT Returns. A small number of businesses cannot register online and must instead use the paper VAT1 form, which you request from HMRC.

Before you start, have your company details to hand, including your company registration number, business bank account details, your Unique Taxpayer Reference and information about your turnover and business activity. Once registered, HMRC issues your VAT registration number, and from your effective date of registration you must charge VAT on your taxable sales, keep VAT records and submit returns.

If you register late you still have to account for VAT on your sales from the date you should have been registered, even if you did not charge it to your customers at the time, so timing matters. In practice this means the unpaid VAT comes out of your own margin, which can be a painful surprise on top of any penalty HMRC applies. There can also be a short gap between applying and receiving your VAT number, during which you cannot show VAT as a separate line on invoices; the usual approach is to raise your prices to include the VAT you will owe and then reissue proper VAT invoices once your number arrives.

If you are unsure whether you have crossed the threshold, or you want help deciding whether voluntary registration makes sense, our team can help you assess your position through Nasara Connect's start-up support.

VAT accounting schemes that can simplify things

Standard VAT accounting means recording VAT on the invoice date and usually submitting a return every quarter. For many smaller companies, one of HMRC's optional schemes can reduce the administration or improve cash flow. Each scheme has its own eligibility limit and suits a different type of business.

The Flat Rate Scheme is open to businesses with VAT taxable turnover of 150,000 pounds or less excluding VAT. Instead of working out VAT on every sale and purchase, you pay a fixed percentage of your turnover to HMRC and keep the difference. You generally cannot reclaim VAT on purchases, except for certain capital assets costing more than 2,000 pounds. The Cash Accounting Scheme, open to businesses with turnover of 1.35 million pounds or less, lets you pay VAT only when your customers actually pay you and reclaim VAT only when you have paid your suppliers, which helps if customers are slow to settle invoices.

The Annual Accounting Scheme, also for businesses with an estimated turnover of 1.35 million pounds or less, replaces quarterly returns with advance payments through the year and a single annual return. It suits companies with a steady VAT position but is a poor fit if you regularly reclaim VAT, because you would only receive one refund a year. The table below compares the schemes and who each one suits.

Making Tax Digital for VAT

Making Tax Digital (MTD) for VAT changes how registered businesses keep records and file returns. All VAT-registered businesses are now signed up for Making Tax Digital for VAT, and HMRC no longer asks you to sign up separately when you register. In practice this means MTD applies from the point your company becomes VAT-registered.

Under MTD you must keep digital VAT records and submit your VAT Returns using compatible software rather than typing figures into HMRC's website by hand. Many bookkeeping and accounting packages are MTD-compatible, and choosing one early makes registration and ongoing filing far smoother.

Digital record-keeping is not just a filing requirement; it also underpins the other decisions in this guide. Accurate, up-to-date figures make it far easier to spot when your rolling 12-month turnover is approaching the 90,000 pound threshold, to work out whether a scheme such as the Flat Rate or Cash Accounting scheme would help, and to prepare a correct final return if you ever deregister. Because compatible software captures your sales and purchases as you go, it removes much of the manual effort that used to make VAT returns error-prone.

Getting your record-keeping set up correctly at the outset avoids scrambling to comply after you register. If you would like a walkthrough of MTD-ready tools or help choosing a scheme, you can book a demo or talk to our team.

Conclusion

VAT registration becomes compulsory once your taxable turnover crosses 90,000 pounds over any rolling 12-month period, or when you expect to cross it within 30 days, and you must act within the relevant 30-day deadline. Below that level you can register voluntarily, and you can deregister if turnover falls below 88,000 pounds. Getting the timing right protects you from paying VAT you never collected and from penalties.

Beyond the mechanics of registering, the bigger decisions are which VAT rate applies to what you sell, whether an optional scheme such as the Flat Rate, Cash Accounting or Annual Accounting scheme would suit you, and how you will meet Making Tax Digital requirements. Plan these early, keep good digital records, and VAT becomes a routine part of running a healthy UK company rather than a source of stress.

Frequently asked questions