What happens when you cross the £90,000 VAT threshold

You must register for VAT when either of two separate tests is met.

Backward look: taxable turnover over ANY rolling 12 months exceeds £90,000 Forward look: you expect to exceed £90,000 in the next 30 days alone

The rolling 12 months is the part people miss. It is not your financial year and not the tax year. It is any consecutive twelve months, tested at the end of every month, so a strong autumn can push you over on a rolling basis while your annual accounts still show you comfortably under.

The two tests also have different effective dates. Cross on the backward look and you register from the first day of the second month after you went over. Cross on the forward look and you register from the date you realised, which can be immediate.

Once registered you charge 20% on standard-rated sales and reclaim the VAT on your costs. You can deregister if taxable turnover falls below £88,000.

The cliff is real, but it lands almost entirely on businesses selling to consumers. Two businesses, both going from £89,000 to £95,000 of turnover.

Selling to consumers. Your customers cannot reclaim VAT, so you either raise prices 20% and become more expensive overnight, or absorb it. Absorbing it means £95,000 of sales now contains £15,833 of VAT that belongs to HMRC, leaving £79,167 of revenue. You billed £6,000 more and ended up with about £9,833 less. You get some of that back by reclaiming VAT on your own costs, but for a service business with few purchases that recovery is small.

Selling to VAT-registered businesses. Your customers reclaim the VAT you charge, so it costs them nothing. You keep the same £95,000, and you now reclaim VAT on your laptops, software and subscriptions, which you could not do before. Registration made you better off.

So the honest version of the "ambush" is that it is a consumer-facing problem. If you sell B2B, crossing the threshold is usually mildly positive, and voluntary registration below the threshold is often worth doing.

Taxable turnover means everything standard-rated, reduced-rated and zero-rated. It excludes genuinely exempt supplies such as most insurance, finance, and some education and health services. Zero-rated is not the same as exempt: zero-rated sales count towards the threshold, exempt ones do not.

Source: GOV.UK: register for VAT, checked 2026-08-08.

• Most of the pain disappears if your customers are VAT registered. The single biggest determinant of whether crossing hurts is who you sell to, not how much you sell.
• The Flat Rate Scheme changes the arithmetic. Available under £150,000 of turnover, it lets you pay a fixed percentage of gross turnover instead of tracking input VAT. For a service business with low costs it can be better, though the limited cost trader rules removed most of that advantage.
• Deliberately staying under the threshold has a real cost. Turning down work to stay below £90,000 caps your business at that number permanently. The cliff is a one-off; the ceiling is forever.
• Splitting a business to stay under is disaggregation and HMRC actively challenges it. Two companies with the same customers, staff and premises will usually be treated as one.
• Registration comes with Making Tax Digital obligations, meaning digital records and compatible software, which is an ongoing admin cost that the threshold arithmetic never captures.

£90,000 of VAT taxable turnover, unchanged since 1 April 2024. The deregistration threshold is £88,000. The test is on a rolling twelve month basis, not on your accounting year or the tax year: at the end of every month you check whether the previous twelve months went over £90,000. You must also register if you expect to go over £90,000 in the next 30 days alone.

No, and this catches out seasonal businesses in particular. It is any rolling twelve month period. A business can file two consecutive years of accounts that are both comfortably under £90,000 and still have been required to register partway through, because a twelve month window straddling its two busy periods went over the threshold. Nothing in the annual accounts would ever show it.

It depends almost entirely on your gross margin, and the direction surprises people: a thinner margin means a much wider dead zone. VAT takes a sixth of your turnover, and turnover is a far larger multiple of profit for a low margin business. At a 60 percent gross margin you would need roughly £116,000 to match the income you had at £90,000. At a 20 percent margin your income halves at registration and you would need £180,000, double the threshold, simply to stand still.

Far less, and often it helps. A VAT registered customer reclaims whatever VAT you charge them, so their real cost does not change and the price rise is usually not a negotiation. You then start reclaiming the VAT inside your own costs, which nobody was refunding you before. For most B2B businesses crossing the threshold makes you better off. The real cost is the quarterly filing, the Making Tax Digital software and the record keeping, not the money.

Within 30 days of the end of the month in which your rolling twelve month turnover went over £90,000. You are then registered from the first day of the second month after you went over. If instead you expect to pass £90,000 in the next 30 days alone, you must register before those 30 days are up and you are registered from the day you realised. Sales made in the gap are already inside the VAT world whether or not you have raised your prices, so a business that notices late owes VAT on income it charged at pre-registration prices.

You must register if taxable turnover in any rolling 12-month period goes over £90,000, or if you expect it to go over £90,000 in the next 30 days. It is not a calendar year or tax year. If you already went over in the last 12 months, you generally must register within 30 days of the end of the month you went over. You can also register voluntarily below £90,000. The optional deregistration threshold is £88,000.