Should I register voluntarily before I reach £90,000?

Sometimes. If your customers are VAT-registered businesses entitled to recover all of the VAT you charge them, VAT on your invoices will generally not represent a cost to them, and registration allows you to recover qualifying input VAT on your own expenditure. If your customers are consumers or businesses with restricted VAT recovery, the commercial effect is different. On standard-rated consumer sales you may need to increase your VAT-inclusive price or absorb some or all of the VAT within your existing price. The answer depends on margins, customer mix and recoverable costs rather than turnover alone.

Can I reclaim VAT on costs incurred before I registered?

Often, within the specific pre-registration rules. Different time limits apply to goods and services, and the costs must relate to the taxable business activity. Keep the original VAT invoices and review the pre-registration claim as part of the first VAT return.

How long does VAT registration take?

Processing times vary, and applications involving overseas businesses, unusual activities or additional HMRC checks can take longer. Your obligation to account for VAT is based on your effective date of registration, not simply the date the VAT number arrives, so invoicing needs to be managed accordingly.

What happens if I have been applying the wrong VAT treatment for years?

Correct it rather than carrying the error forward. Depending on the size and circumstances, an error may be correctable through a VAT return or may need to be notified separately to HMRC. Deliberate errors must be separately disclosed. The penalty position also depends on behaviour and disclosure. Identifying and correcting an error before HMRC discovers it can make a significant difference.

VAT Services for UK Businesses

VAT errors are common because apparently small differences in the facts can change the treatment — where the customer belongs, whether you are acting as principal or agent, what a building was used for before conversion, or who imports the goods.

We handle VAT registration, returns and scheme selection, and advise on areas where the rules are genuinely difficult: imports and exports, margin schemes, construction, land and property, and digital and ecommerce supplies.

Speak to a VAT specialist Book a free consultation

When you have to register

Registration is compulsory once your taxable turnover crosses the threshold under either of two tests.

Registration thresholds

The historic test. At the end of every month, total your taxable turnover for the previous 12 months. Once that rolling figure exceeds £90,000, you normally have to 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 you exceeded the threshold.

The future test. There is a separate test if you expect your taxable turnover to exceed £90,000 in the next 30 days alone. A single large contract can be enough. You must register by the end of that 30-day period. Your effective date of registration is the date on which you first had reasonable grounds to expect the threshold would be exceeded, rather than the date the sales actually took place.

Figures checked 8 September 2026. Rates and thresholds change — confirm the current position before relying on them.

Two points catch businesses out.

Taxable turnover is not profit and is not necessarily the same as turnover in your accounts. It includes standard-rated, reduced-rated and zero-rated supplies, while exempt and genuinely outside-the-scope supplies are treated differently.

And if you buy and resell as principal rather than acting as an agent, the full selling price will normally form part of your turnover even if your economic margin is small.

Temporary breaches

If you exceed the historic registration threshold because of a temporary increase in sales, you can apply to HMRC for exception from registration if you can demonstrate that your taxable supplies in the following 12 months will not exceed the £88,000 deregistration threshold. This exception is not available for the separate 30-day future-look test.

Deregistration

If your taxable turnover falls below £88,000, you may be able to cancel your VAT registration. Deregistration is not automatic, and VAT can become due on certain stock and business assets still held when registration ends. Review the position before submitting the application rather than discovering the adjustment afterwards.

Choosing the right VAT scheme

Scheme selection is one of those decisions that can continue affecting cash flow and administration for years.

The Flat Rate Scheme deserves particular care. Instead of deducting most input VAT from output VAT, the business applies a prescribed flat-rate percentage to its VAT-inclusive turnover. The important trap is the limited cost business test: where expenditure on qualifying goods falls below the prescribed test, a 16.5% flat rate applies. That can make the scheme unattractive for service businesses with very little qualifying goods expenditure. Run the numbers before joining rather than assuming the Flat Rate Scheme means a lower VAT bill.

Comparing the schemes

Comparison of VAT accounting schemes, who can use them, how they work and what to watch for
Scheme	Who can use it / entry threshold	How it works	Watch for
Standard accounting	Any VAT-registered business	VAT accounted for by reference to the tax point of the supply, rather than when the customer pays.	Output VAT can fall due before the customer has paid the invoice.
Cash accounting	Estimated taxable turnover of £1.35m or less in the next 12 months	Output VAT when customers pay you; input VAT when you pay suppliers.	Input VAT recovery is also deferred. You must normally leave if taxable turnover exceeds £1.6m.
Annual accounting	Estimated taxable turnover of £1.35m or less in the next 12 months	One VAT return a year, with payments on account during the year.	Less frequent reporting can reduce visibility. Businesses regularly reclaiming VAT may find it unattractive, because refunds are normally obtained only through the annual return.
Flat Rate Scheme	Expected taxable turnover of £150,000 or less, excluding VAT, in the next 12 months	A prescribed flat-rate percentage is applied to VAT-inclusive turnover instead of deducting most input VAT.	Limited cost businesses use the 16.5% rate. You must normally leave once total income including VAT exceeds £230,000 — note that the exit test is VAT-inclusive while the entry test is not.
Margin schemes	Qualifying goods and qualifying purchase circumstances	VAT calculated on the dealer's margin rather than the full selling price.	Eligibility depends on how the goods were acquired and on complying with invoicing and record-keeping conditions.
Retail schemes	Eligible retail businesses; scheme-specific conditions apply	VAT is calculated using an approved retail method rather than identifying VAT on every individual retail sale.	There is no single general turnover threshold across all retail schemes; the method must be appropriate to the business.

Standard accounting

Who can use it / entry threshold: Any VAT-registered business
How it works: VAT accounted for by reference to the tax point of the supply, rather than when the customer pays.
Watch for: Output VAT can fall due before the customer has paid the invoice.

Cash accounting

Who can use it / entry threshold: Estimated taxable turnover of £1.35m or less in the next 12 months
How it works: Output VAT when customers pay you; input VAT when you pay suppliers.
Watch for: Input VAT recovery is also deferred. You must normally leave if taxable turnover exceeds £1.6m.

Annual accounting

Who can use it / entry threshold: Estimated taxable turnover of £1.35m or less in the next 12 months
How it works: One VAT return a year, with payments on account during the year.
Watch for: Less frequent reporting can reduce visibility. Businesses regularly reclaiming VAT may find it unattractive, because refunds are normally obtained only through the annual return.

Flat Rate Scheme

Who can use it / entry threshold: Expected taxable turnover of £150,000 or less, excluding VAT, in the next 12 months
How it works: A prescribed flat-rate percentage is applied to VAT-inclusive turnover instead of deducting most input VAT.
Watch for: Limited cost businesses use the 16.5% rate. You must normally leave once total income including VAT exceeds £230,000 — note that the exit test is VAT-inclusive while the entry test is not.

Margin schemes

Who can use it / entry threshold: Qualifying goods and qualifying purchase circumstances
How it works: VAT calculated on the dealer's margin rather than the full selling price.
Watch for: Eligibility depends on how the goods were acquired and on complying with invoicing and record-keeping conditions.

Retail schemes

Who can use it / entry threshold: Eligible retail businesses; scheme-specific conditions apply
How it works: VAT is calculated using an approved retail method rather than identifying VAT on every individual retail sale.
Watch for: There is no single general turnover threshold across all retail schemes; the method must be appropriate to the business.

Special rules apply to qualifying second-hand goods, works of art, antiques and collectors’ items — see our VAT Margin Scheme and Auctioneers’ Scheme page.

What we do

VAT registration, including registrations for non-UK established businesses
Voluntary registration and deregistration advice
Scheme selection and modelling
Flat Rate Scheme versus standard accounting comparisons
Monthly, quarterly and annual VAT returns
MTD-compliant VAT reporting
Partial exemption calculations and annual adjustments
VAT error correction and disclosures to HMRC
HMRC enquiries, assessments and appeals
Retrospective VAT reviews
Land and property VAT
Options to tax
Pre-registration input tax recovery
Cross-border VAT
Ecommerce and marketplace VAT
VAT margin schemes

Specialist areas

Imports and exports

Postponed VAT accounting, import VAT recovery, evidence of export, overseas suppliers, reverse charge services and importer-of-record issues.

Margin and auctioneers’ schemes

Second-hand goods, antiques, art and collectors’ items, global accounting, auctioneers and the record-keeping requirements that determine whether margin treatment is available.

Construction

The domestic reverse charge, new-build zero-rating, the 5% reduced rate for qualifying conversions and renovations, property development and DIY housebuilder claims.

Digital services and ecommerce

Place of supply, overseas sellers, online marketplaces, the £135 consignment rules and EU OSS/IOSS.

Late filing and late payment

VAT has separate penalty regimes for late returns and late payments.

Penalties

Late submission. Late VAT returns are subject to a points-based system. The penalty threshold depends on filing frequency: 2 points for annual returns, 4 points for quarterly returns and 5 points for monthly returns. Once the threshold is reached, HMRC charges a £200 penalty. A further £200 penalty applies to each subsequent late submission while the business remains at the threshold. Nil and repayment returns still need to be filed by the deadline.

Late payment. There is normally no late-payment penalty where the VAT is paid within the first 15 days after the due date, although late-payment interest can still run. Where VAT remains unpaid: from day 16, the first penalty is 3% of the amount outstanding at day 15; if payment remains outstanding at day 31, a further 3% of the amount outstanding at day 30 is added; and from day 31, a second penalty accrues daily at an annualised rate of 10% on the amount still unpaid. Late-payment interest is separate from these penalties.