Going over the VAT threshold is a significant milestone for any small business. It brings new obligations, a different relationship with HMRC, and real decisions to make about your pricing and administration. This guide explains exactly what happens, when you need to act, and the most common mistakes to avoid.
The VAT Threshold: How It Works
The £90,000 threshold applies to your taxable turnover, not your profit. Taxable turnover means the total value of all VAT-able sales you make in any rolling 12-month period. This is not the calendar year or your accounting year. It is any 12 consecutive months.
This matters because your turnover could cross the threshold in October 2026 based on the cumulative total of November 2025 to October 2026, even if neither individual year showed a figure over £90,000 when viewed in isolation.
You must check your rolling 12-month total every month. If at the end of any month it exceeds £90,000, you have triggered the threshold.
What Happens When You Cross the Threshold
You must register for VAT within 30 days of the end of the month in which your turnover exceeded £90,000. The effective date of your VAT registration is the first day of the month after you exceeded the threshold.
Example: Your rolling 12-month turnover crossed £90,000 on 15 October 2026. You have until 30 November 2026 to register. Your VAT registration becomes effective from 1 November 2026. From that date, you must charge VAT on all applicable sales.
How to Register for VAT
Register online through your Government Gateway account at gov.uk/register-for-vat. The process typically takes 15 to 30 minutes. You will receive your VAT registration number and a VAT certificate within approximately 30 working days.
What you will need:
- Your business name and address
- Business bank account details
- Date your turnover first exceeded the threshold
- Details of your business activity and expected turnover
- Your National Insurance number (sole traders) or Company Registration Number (limited companies)
What VAT Registration Means for Your Business
You must charge VAT on your sales. Most goods and services are standard rated at 20%. You add VAT to your invoices and collect it from your customers. Every quarter (or monthly if you choose), you send what you have collected to HMRC via your VAT return.
You can reclaim VAT on your purchases. Any VAT you pay on business costs, from materials and stock to equipment, software, and professional fees, can be reclaimed as input VAT on your return. For businesses with significant costs, this can be a meaningful sum.
You must issue VAT invoices. Any VAT-registered business customer needs a proper VAT invoice showing your VAT number, the VAT rate, and the VAT amount separately.
You must keep digital VAT records. Under Making Tax Digital for VAT, all VAT-registered businesses must keep digital records and submit VAT returns using HMRC-approved software such as Xero, QuickBooks, FreeAgent, or Sage.
The Pricing Problem: And How to Handle It
The most immediate practical challenge when you cross the VAT threshold is what to do about your prices.
If your customers are VAT-registered businesses, adding 20% VAT to your invoices is not a problem for them. They simply reclaim it. Your prices can stay the same and VAT is added on top.
If your customers are consumers (individuals paying personally), they cannot reclaim VAT. Adding 20% VAT effectively makes you 20% more expensive overnight. Your options:
- Absorb the VAT from your margin: your gross revenue stays the same but you pay 20% of it to HMRC, earning 16.7% less per sale
- Increase your prices by 20%: preserves your margin but risks losing price-sensitive customers
- Increase prices by less than 20%: a middle ground, sharing the burden between you and your customers
Late VAT Registration: Penalties
HMRC applies penalties for registering late, calculated as a percentage of the net VAT you should have collected:
| How late | Penalty |
|---|---|
| Up to 9 months late | 5% of net VAT owed |
| 9 to 18 months late | 10% of net VAT owed |
| More than 18 months late | 15% of net VAT owed |
A minimum penalty of £50 applies. HMRC can also require you to account for VAT on every sale made during the unregistered period, even if you did not charge it to customers. If you realise you should have registered earlier, register immediately and contact HMRC. Voluntary disclosure almost always results in lower penalties than being discovered.
VAT Schemes for Small Businesses
Flat Rate Scheme
Pay a fixed percentage of gross turnover to HMRC. Available if taxable turnover is below £150,000. Simple to administer.
Cash Accounting Scheme
Pay VAT when customers actually pay you, not when you invoice. Protects cash flow.
Annual Accounting Scheme
Submit one VAT return per year with monthly advance payments. Reduces paperwork for stable businesses.
Standard Scheme
Quarterly returns, full input VAT reclaim on all purchases. Best for businesses with significant costs.
Client A was a self-employed IT trainer in Wembley. His turnover had been steadily growing and we spotted in our quarterly review that his rolling 12-month figure had crossed £90,000 in August 2026. He had not noticed.
We registered him for VAT immediately, before the 30-day deadline. Because he caught it in time, there was no late registration penalty. We set him up on the Cash Accounting Scheme and enrolled him with QuickBooks for MTD-compliant VAT returns.
The majority of his clients were businesses who could reclaim the VAT he charged, so the pricing impact was minimal. We also worked through his purchase VAT for the previous three years. VAT-registered businesses can reclaim input VAT on purchases made up to four years before registration where goods are still in use. His first VAT return produced a reclaim of over £2,200.
Frequently Asked Questions
Approaching or over the VAT threshold?
At Your Tax Help Accountants in Stanmore, we handle VAT registrations, first returns, and ongoing MTD-compliant VAT compliance for businesses across Harrow, Wembley, and London.
Or email info@yourtaxhelp.co.uk | yourtaxhelp.co.uk