VAT: When to Register, When Not To, and When to Come Off
Most business owners we speak to are asking one of these questions:
- My turnover just went over £90,000, what happens now?
- Should I register early even though I do not have to?
- Can I come off VAT now that things have gone quiet?
This article works through all three, with the numbers and the timings that matter.
When Do I Have to Register for VAT?
You must register once your taxable turnover in any rolling 12 month period goes over £90,000. This is not your accounting year, your tax year, or any 12 month window you choose. It is a moving total, checked at the end of every single month, looking back across the previous 12.
There is also a forward looking test that catches people out. If you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone, for example because you have just signed one large contract, you must register immediately rather than waiting for the rolling total to catch up.
Priya runs a marketing consultancy. Her turnover for the 12 months to 31 August 2026 is £91,400. She has been warned by her accountant that she’s close to the threshold so she checks her figures properly at month end. She has 30 days from the end of August to notify HMRC, so she must register by 30 September.
Her effective date of registration is 1 October 2026, the first day of the second month after she crossed the threshold. From that date she must charge VAT on her invoices. If she doesn’t put her prices up by 20%, the existing price is inclusive of VAT.
If her hourly rate is £80, and she adds 20% VAT to that, she would need to add £16 and charge her client £96. £80 is known as the net price and £96 is known as the gross price.
If Priya doesn’t feel able to add VAT on to her prices and decides to absorb it, her gross price is £80 and her VAT would be £13.33 making her net price £66.67 (you divide the gross price by 6 to arrive at the VAT).
What Counts Towards the £90,000?
This is where a lot of businesses trip up, because taxable turnover is broader than most people assume. It includes standard rated, reduced rated and zero rated sales, hire or loan income, and goods you take from the business for personal use.
If you buy in services from a supplier based overseas, such as consultancy, software or advertising, you are treated as making that supply to yourself, and its value must be added to your own turnover when working out whether you need to register. This has pushed businesses over the threshold who had no idea it applied to them.
What does not count is genuinely exempt income, such as certain financial, insurance and health services. The distinction between zero rated and exempt causes real confusion. Zero rated sales are still taxable supplies and do count towards the threshold, even though the VAT charged on them is nil. Exempt supplies do not count at all. If you are not sure which category your income falls into, you must get advice from a qualified adviser like us.
What If I Go Over the Threshold but Only Temporarily?
Crossing £90,000 may not automatically mean you need to register if the breach is genuinely temporary. HMRC allows you to apply for a registration exception if you can show that your taxable turnover will not exceed the deregistration threshold of £88,000 over the following 12 months. This is not automatic. You must write to HMRC with evidence, and they decide whether to accept it. If they are not satisfied, you will be registered anyway.
A wedding photographer takes an unusually large booking for a corporate event that pushes her rolling turnover to £96,000 for one month only. Her normal turnover sits around £60,000 a year and she has no other large contracts in the pipeline. She applies for an exception, sets out why the spike was one off, and HMRC grants it. Had she done nothing, she would have been registered from the following month regardless of how temporary the spike was.
What Happens If I Miss the Deadline or Do Not Realise in Time?
HMRC’s rules are precise and do not bend for good intentions. Once you cross £90,000, you have 30 days from the end of that month to notify them. Your effective registration date is fixed at the first day of the second month after you went over, regardless of when you get round to registering. Miss this and you owe VAT on everything you sold from that backdated date, plus a possible penalty on top.
A tradesman does not notice he has gone over the threshold until 18 months later, by which point he has billed £126,000 since the date he should have registered. As he registered late, HMRC considers all his sales income from the date he should have registered as VAT inclusive i.e. he owes them one sixth of his turnover – £21,000 on £126,000. Some customers who are VAT registered themselves may agree to be re-invoiced so he can recover part of it, but plenty will not, and that gap comes straight out of his own pocket.
He may be able to offset VAT he has paid to his own suppliers to offset what he has to pay HMRC, but this is subject to the normal rules for recovering input VAT. The chances that he will have VAT receipts for everything is slim, in our experience.
This is the single most expensive mistake we see in this area, and it is entirely avoidable with a real time view of turnover rather than an annual glance at the year-end figures.
This is where having regular bookkeeping by a trained professional can make the world of difference. For our non-VAT registered clients, we check at the end of every month if they’ve reached the VAT threshold. If they’re getting close, we warn them too.
Should I Register Before I Am Forced To?
Voluntary registration is worth genuine thought rather than being treated as something to put off. The right answer depends heavily on who buys from you.
If your customers are mostly other VAT registered businesses, voluntary registration is often neutral or positive. They reclaim the VAT you charge, so your prices do not become less competitive, and you gain the ability to reclaim VAT on your own costs, from software subscriptions to office equipment. A business selling B2B services with modest turnover can genuinely be better off registered than not.
If most of your customers are members of the public or small businesses who cannot reclaim VAT, the calculation is less straightforward. Adding 20% to your prices, or absorbing it yourself, is a real commercial decision that needs to be modelled against your specific cost base rather than assumed.
An 11 person consultancy turning over £900,000 is already VAT registered and always will be, but a freelance graphic designer turning over £45,000 a year, working almost entirely for agencies who are themselves VAT registered, is in a different position. Registering voluntarily lets them reclaim VAT on their laptop, software and home office costs, and their agency clients are indifferent to the VAT on their invoices because they reclaim it anyway. For them, voluntary registration is close to a free win.
What Are the Downsides of Registering Voluntarily?
- Stricter regulation: there are tighter rules about the evidence you need to keep to recover input VAT that go above and beyond what you are required to keep for normal income tax deductions
- Extra admin: you need to keep digital records under Making Tax Digital and submit returns, usually quarterly
- Price sensitivity: if your customers cannot reclaim VAT, your effective prices rise, or your margin falls if you absorb it
- A minimum commitment: once registered, you generally need to stay registered until your turnover falls below the £88,000 deregistration threshold, so this is not something to flip on and off
When Can I Come Off VAT, and Is It Worth It?
You can apply to deregister once your taxable turnover for the next 12 months is expected to fall below £88,000, the deregistration threshold. This is deliberately set £2,000 below the £90,000 registration threshold, precisely to stop businesses whose turnover hovers around the line from registering and deregistering every few months. Falling below £88,000 does not deregister you automatically. You must apply, and HMRC will confirm a cancellation date.
You would typically want to deregister if your turnover has genuinely and lastingly dropped or if your customer base has shifted towards people who cannot reclaim VAT and your prices would be more competitive without it. If you have stopped trading, then the decision is not yours – you are not allowed to be VAT registered if there is no business.
A sole trader gradually scales back her business ahead of retirement. Turnover falls from £110,000 to £70,000 over two years, and she expects it to stay there. She applies to deregister, HMRC confirms a cancellation date, and she submits a final VAT return covering the period up to that date.
What Happens on My Final VAT Return When I Deregister?
The final return covers the period up to your cancellation date, and there is a detail that catches people out. If you hold business assets on which you reclaimed VAT, such as equipment, stock or a company vehicle, and the total VAT on those assets is more than £1,000, you generally need to account for VAT on their current value as though you had sold them. This is sometimes called deemed self-supply, and it exists so that businesses cannot reclaim VAT on assets and then deregister to avoid ever accounting for their eventual use or sale.
Invoices that arrive after your cancellation date but relate to the period when you were still registered can usually still be reclaimed, so it is worth holding your bookkeeping open for a short window rather than closing it the moment the cancellation date passes.
Can I Be Forced to Re-register After Coming Off VAT?
Yes. Deregistering does not give you a fresh, permanent exemption from the rules. If your turnover climbs back over £90,000 at any point in the future, the normal rolling 12 month test applies exactly as it did the first time. Some businesses come off VAT for a genuinely quiet period and then find themselves back over the threshold a year or two later as things pick up. There is nothing wrong with that, but it does mean deregistering is not a one way door, and the same discipline around monitoring turnover applies just as much afterwards as it did before.
Carolyn says:
“We had this happen to a client of ours this year. They genuinely thought their turnover would be falling below the VAT threshold so asked us to deregister them. This was a good move for them as their customers could not reclaim the VAT on their invoices.
We did this but then they had an unexpected jump in their sales income. It turned out to be short-lived, so we applied to HMRC for a registration exception”
The Bigger Picture
Almost every mistake in this area comes down to the same root cause: not knowing where you stand against the threshold in real time. A spreadsheet updated once a quarter will not catch a sudden spike from a single large contract, and it will not tell you the moment your rolling total quietly drifts past £90,000 in a month you were not paying close attention to. Software packages like Xero and FreeAgent give you a live rolling total automatically, which turns VAT from a source of anxiety into a straightforward, plannable part of running the business. Provided your bookkeeping is done in real time.
If you are approaching the threshold, thinking about registering early, or wondering whether it is time to come off VAT, this is not a decision to make on a hunch. Get in touch and we will run the actual numbers for your business before you commit either way.
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IMPORTANT NOTICE — NOT TAX OR PROFESSIONAL ADVICE
This article is published by Composure Accounting & Taxation Limited for general informational purposes only. It does not constitute tax advice, legal advice, financial advice, or any other form of professional advice, and should not be relied upon as such. The information contained in this article reflects the law and government guidance as understood at the date of publication and is subject to change.
Every business’s position is different and depends on its specific circumstances. Nothing in this article should be treated as a recommendation to take or refrain from taking any particular course of action. You should always seek independent professional advice, including specialist employment law advice where appropriate, tailored to your own situation before making any decisions.
Composure Accounting & Taxation Limited accepts no liability for any loss or damage arising from reliance on the contents of this article. The publication of this article does not create a client relationship between the reader and Composure Accounting & Taxation Limited.
Composure Accounting & Taxation Limited is registered in England and Wales. Registered office: Wildens, Coneyhurst Road, Billingshurst, West Sussex, RH14 9DE
