A café that closes on Mondays. A plumber who turns down the last two jobs before the year end. A consultant who takes December off, every year, whether the work is there or not. These are not lifestyle choices; they are tax decisions, made to keep turnover under £90,000 and stay out of the VAT system.
TL;DR: The UK VAT registration threshold is £90,000 of taxable turnover over any rolling 12 months. Cross it and you must register within 30 days, then add 20% VAT to your prices or absorb it. Many businesses deliberately cap growth to stay below. Sometimes that is sensible. Often the Flat Rate Scheme makes registering less painful than it looks.
What Is the VAT Registration Threshold in 2026?
The threshold is £90,000 of taxable turnover measured over any rolling 12-month period, not your accounting year (GOV.UK, 2026). Go over it and you must register for VAT. The figure rose from £85,000 on 1 April 2024 and has stayed frozen since, so more businesses drift into scope each year as prices rise.
There is a second trigger. If you expect to go over £90,000 in the next 30 days alone, for example after signing a single large contract, you must register straight away. The deregistration threshold sits slightly lower at £88,000, so a business that dips below can ask HMRC to cancel its registration. That gap stops you flipping in and out over a few hundred pounds.
The £90,000 Cliff Edge That Stops Businesses Growing
Crossing the line usually means adding 20% to your prices or handing HMRC a fifth of your margin. For a business selling to the public, that is a real cliff edge rather than a gentle slope.
The Office for Budget Responsibility found the number of firms deliberately capping turnover roughly doubled, from 23,000 to 44,000, between 2017-18 and 2025-26, with the lost turnover rising from £110 million to £350 million (OBR, 2024). HMRC's own distribution data shows the pile-up: 683,700 businesses reported turnover below the threshold in the year to December 2025, while only 280,400 sat in the £90,000 to £150,000 band above it (BM Magazine, 2026). In our experience, most owners who cap growth have never actually run the numbers on what registering would cost them.
Should You Register for VAT Before You Have To?
Voluntary registration makes sense when your customers are themselves VAT-registered businesses, because they reclaim the VAT you charge and your price rise costs them nothing. It also helps if you buy a lot of standard-rated stock or equipment, since you can then reclaim the input VAT you are currently swallowing.
It works against you when you sell to consumers or to small unregistered businesses. They cannot reclaim, so a 20% rise either prices you out or eats your margin. What we see most often is a service business with mainly B2B clients that would gain from registering early, and a retailer or trades business selling to households that is right to be cautious. The sole trader versus limited company decision often sits alongside this one, and the two are worth modelling together.
How Does the Flat Rate Scheme Change the Maths?
The Flat Rate Scheme softens the blow for smaller businesses. If your VAT turnover is £150,000 or less excluding VAT, you can pay a fixed percentage of your VAT-inclusive turnover to HMRC and keep the difference, rather than tracking VAT on every purchase (GOV.UK, 2026).
The percentage depends on your trade: 14.5% for accountancy, 9.5% for general building, 4% for retailing food. You get a 1% discount in your first year of registration. The catch is the limited cost business rule: if you spend very little on goods, under 2% of turnover or under £1,000 a year, you pay a flat 16.5%, which usually wipes out the benefit. One question clients always ask is whether the scheme leaves them better off, and for a low-cost service business it often does, at least for that first discounted year.
What Happens When You Cross the Threshold?
You must register within 30 days of the end of the month in which your rolling turnover passed £90,000. Your effective date of registration is the first day of the second month after you went over.
Say your 12-month turnover first tops £90,000 on 15 July, reaching £100,000. You must register by 30 August, and your effective date is 1 September (GOV.UK, 2026). From that date you charge VAT and can reclaim it. Register late and you owe VAT on every sale since the date you should have registered, plus a possible penalty. If the spike was genuinely a one-off and you expect to fall back below £88,000, you can apply for a registration exception so you do not have to register at all. Registering also signs you up to Making Tax Digital for VAT, which our MTD record-keeping guide covers in full.
When Capping Your Growth Makes Sense
Holding just below £90,000 can be rational for a consumer-facing business with thin margins that sits close to the line. If registering would force a 20% price rise your customers will not accept, the maths may genuinely favour staying small for now.
The dangerous route is splitting one business into two to keep each below the threshold. HMRC can treat artificially separated businesses as a single entity and backdate registration, and it actively looks for this (House of Commons Library, 2026). A cleaner approach is to plan the crossing: build the VAT into your pricing ahead of time, register voluntarily on the Flat Rate Scheme to smooth the transition, or time it around a quieter quarter. Managing the cash side well matters too, which is where solid cash flow planning earns its keep.
Frequently Asked Questions
Does the £90,000 threshold apply to profit or turnover?
Turnover, not profit. It is based on your taxable turnover, meaning the total value of the standard-rated, reduced-rated and zero-rated goods and services you sell, before any costs. VAT-exempt and out-of-scope income does not count towards it.
Can I deregister if my turnover drops below the threshold?
Yes. If your taxable turnover falls below £88,000 you can ask HMRC to cancel your registration, unless you are caught by the rules for overseas businesses. You then stop charging VAT from your cancellation date and submit a final return.
Will registering for VAT force me onto Making Tax Digital?
Yes. HMRC automatically signs new VAT registrations up to Making Tax Digital for VAT, so you will need compatible software to keep digital records and file your returns. Our guide to quarterly VAT returns walks through the deadlines.
Is splitting my business to stay under the threshold legal?
Genuine separate businesses with their own customers and finances can each have their own turnover. But artificially disaggregating one business to dodge registration is not allowed, and HMRC can aggregate the parts and register you from the date you should have crossed the threshold.
Not sure whether registering for VAT would help your business or hurt it? Get in touch - we will run the numbers on your customer base and margins, model the Flat Rate Scheme, and tell you plainly whether crossing £90,000 is worth planning for or worth avoiding.