The VAT registration threshold, and what counts toward it

What is the VAT registration threshold?

It is £90,000 of taxable turnover, the same for every business. A lower figure of £88,000 applies if you later want to cancel your registration.

What counts toward the £90,000?

Everything you sell that is not exempt from VAT, whether or not you charged VAT on it, across all your businesses (a limited company counts on its own). For a builder or landlord, these count:

• your full invoice for each job, materials included, before any CIS deduction and even when no VAT is shown on it
• zero rated work, such as a brand new house that meets the conditions
• building work your business does for itself using its own workers, where that labour is worth £100,000 or more (for example, putting up its own yard building or office)
• holiday lets, and garages or parking spaces you let on their own (a garage let with a home you rent out is exempt and does not count)
• commercial rent, if you have opted to tax the building
• services you buy from businesses abroad that come under the reverse charge

These do not count:

• rent from homes you let, which is exempt
• selling your van, tools or other things the business owns and uses (but selling a building you have opted to tax does count)
• construction work you buy in under the reverse charge
• the VAT itself

CIS catches subcontractors out, as the contractor pays you less than you invoiced. VAT Notice 708: If Income Tax is deducted from payments you receive under the Construction Industry Scheme, the value of your supply is the gross amount before Income Tax is deducted.

Example: a builder who also lets property

In 12 months a sole trader invoiced £70,000 of building work, took £24,000 rent from two let homes and £8,000 from a holiday let, and sold his van for £12,000. That is £114,000 in all, but only the building work and the holiday let count: £78,000, so he does not need to register yet. Whether a let counts as holiday accommodation depends on the facts.

How do I work out my 12 months, and when must I register?

At the end of every month, add up your last 12 months (any 12 in a row, not the tax year). If the total goes over £90,000, register within 30 days of the end of that month. Your VAT starts on the first day of the month after next, even if your number has not arrived (see what to invoice while you wait).

Example: a plasterer paid under CIS

A plasterer works as a sole trader and is not VAT registered. He invoices contractors for labour and materials:

• October: £6,000
• November to July: £7,200 a month, £64,800 in all
• August: £9,000
• September: £9,500
• the following October: £8,000

At the end of September, his 12 months from October to September come to £89,300. That is under £90,000.

At the end of the following October, his 12 months from November to October come to £91,300. It is the first time his 12 month total has gone over, so he must register by 30 November, and VAT starts on 1 December.

His bank tells a different story. About 80% of each invoice is labour, and contractors take 20% off the labour under CIS: £14,608 over those 12 months. So £76,692 reached his bank, well under £90,000, but the figure that counts is £91,300.

What if one big job will take me over in the next 30 days?

Register by the end of those 30 days. VAT starts from the day you realised, so price that job with VAT in mind. The test looks at those 30 days on their own: This relates to taxable supplies made within a 30 day period alone.

A big final month in a busy year is different: the 12 month test catches it. If you went over only for a one-off spike, you can ask for an exception.

What happens if I register late?

HMRC registers you from the date you should have been. On work outside the reverse charge, such as for householders, you owe VAT on every sale since, even if you charged none. It comes out of money you have already been paid, because whatever price you charge is treated as including VAT.

Example: an electrician who works for householders

An electrician should have started VAT on 1 August. Up to the end of February he invoiced £56,000 of standard rated work and charged no VAT. At 20%, the VAT inside it is 20/120: £9,333.33. Less £1,800 of VAT on materials invoices he holds from that date, he owes HMRC £7,533.33.

Solar panels and heat pumps would change the figure: fitting them is zero rated until 31 March 2027, then 5% from 1 April 2027.

Work for VAT registered contractors under CIS

Standard or reduced rated work for them usually comes under the reverse charge from the date you should have registered, unless the contractor told you in writing it was an end user. Zero rated new build work is outside it.

HMRC’s manual: The trader will need to issue a VAT invoice to their customer, charging no VAT but stating that the reverse charge applies. What a reverse charge invoice must say

Interest and penalties

HMRC can charge interest from the dates the VAT would have been due. A penalty is a percentage of the VAT you owed while unregistered (the ‘potential lost revenue’):

No penalty applies if you had a reasonable excuse, it was not deliberate, and you told HMRC without unreasonable delay once the excuse ended.

Other questions about the VAT threshold