VAT Threshold – What is the VAT Threshold?

Whether you’re running a small business or a large enterprise in the UK, VAT registration becomes a legal requirement once your turnover exceeds the VAT threshold. This threshold sets the limit at which you must register for VAT with HMRC. If you’re wondering “What is the VAT threshold?”, you’re likely just starting out—and this guide will help you understand everything you need to know.

Failing to register for VAT once you’ve exceeded the threshold can lead to penalties and backdated charges. HMRC closely monitors VAT compliance, so it’s essential to understand when you need to register, what the current threshold is, and how to make the process easier by choosing the right VAT accounting scheme.

What is the VAT Threshold?

As of June 2025, the VAT registration threshold in the UK remains £85,000 and will stay frozen until 31 March 2026. This means if your taxable turnover for the past 12 months has exceeded £85,000, you must register your business for VAT with HMRC.

If your turnover is below this level and not expected to exceed it soon, VAT registration is optional. However, some businesses choose to register voluntarily to reclaim VAT on business expenses and boost their credibility with clients.

Important: The VAT threshold is based on a rolling 12-month period, not your tax year or calendar year. You must constantly monitor your turnover to ensure compliance.

Why is the Threshold Frozen?

While the VAT threshold typically changes over time, the government announced a freeze starting in April 2017, which has been extended multiple times to support small businesses. According to the Spring Budget 2024, the £85,000 threshold will remain in place until at least 31 March 2026.

You can register for VAT online via the official HMRC portal. Once registered, you’ll receive:

• Your VAT registration number

• The effective date of registration

• Instructions for submitting your first VAT return and payment

Responsibilities After VAT Registration

Once your business is VAT-registered, you must comply with the following requirements:

• Charge VAT on all taxable goods and services

• Submit VAT returns to HMRC, usually every quarter

• Pay any VAT due to HMRC

• Maintain accurate VAT records and invoices

• Comply with Making Tax Digital (MTD) rules by keeping digital records and submitting returns via MTD-compatible software

Failure to meet these obligations can result in penalties.

When Should You Register for VAT?

You must register for VAT if either of the following applies:

1. Past Turnover Test:

Your VAT-taxable turnover exceeded £85,000 in the last 12 months.

You must register within 30 days of the end of the month in which you crossed the threshold.
Example: On 15 April, you realise that a £10,000 project completed on 5 April pushed your turnover for the previous 12 months to £90,000. You must register by 31 May.

2. Future Turnover Test:

You expect your VAT-taxable turnover to exceed £85,000 in the next 30 days alone.

You must register immediately.
Example: On 1 August, you sign a contract for £90,000 to be delivered within the month. You must register by 1 August.

Voluntary VAT Registration

Even if your turnover is below £85,000, you may choose to register voluntarily. This can offer several advantages:

• Reclaim VAT on purchases and expenses

• Enhance credibility with suppliers and clients

• Prepare your business for growth

• Meet client requirements (e.g. B2B contracts)

However, you’ll also have to comply with VAT obligations like charging VAT and submitting returns. Speak to an accountant to decide if voluntary registration suits your business.

VAT Accounting Schemes

HMRC offers several VAT accounting schemes to simplify the process of calculating and paying VAT:

1. Flat Rate Scheme

   • Pay a fixed percentage of turnover as VAT

   • Available for businesses with turnover up to £150,000 (excluding VAT)

2. Cash Accounting Scheme

   • Pay VAT when you receive payments (not when you invoice)

   • Eligibility up to £1.35 million turnover

3. Annual Accounting Scheme

   • Submit one VAT return per year, with advance payments

   • Available for businesses with turnover up to £1.35 million

These schemes can help improve cash flow and reduce admin burden—your accountant can help you choose the most suitable one.

Making Tax Digital (MTD) for VAT

All VAT-registered businesses, regardless of turnover, must now comply with Making Tax Digital.

This means you must:

• Use HMRC-approved MTD software to keep VAT records

• Submit VAT returns digitally

• Maintain digital links between accounting records

MTD is mandatory unless you have received a formal exemption from HMRC.

The Bottom Line

Understanding and staying compliant with VAT regulations is essential for any UK business. With the VAT threshold currently set at £85,000 until at least March 2026, it’s your responsibility to register on time and meet all legal obligations.

Failing to register after passing the threshold can result in penalties, interest charges, and backdated VAT—seriously impacting your business. Whether you’re just starting or your business is growing fast, keeping on top of VAT requirements is critical.

Our team of professional members loves to hear your business problems. Call us on 02086868876 or email us today. We will come up with fine solutions.

Disclaimer: The information about what is the VAT threshold provided in this blog includes text and graphics that are general. This does not intend to disregard any of the professional advice.