VAT Registration Guide 2026/27: Thresholds, Schemes and Making Tax Digital

VAT Registration Guide 2026/27

Value Added Tax (VAT) at the standard rate of 20% must be charged on most goods and services once your business exceeds the registration threshold. Understanding when you must register, which accounting scheme to use, and how to manage VAT cash flow can make a significant difference to your business finances.

The VAT Registration Threshold 2026/27

Compulsory registration threshold: £90,000 rolling 12-month turnover

You must register if your taxable turnover (sales of standard, reduced, or zero-rated goods/services) has exceeded £90,000 in any rolling 12-month period. You must register within 30 days of the end of the month in which you crossed the threshold.

Deregistration threshold: £88,000. You can deregister if turnover is expected to fall and stay below £88,000.

Voluntary Registration

You can register voluntarily even below £90,000. This makes sense when:

• Your customers are mainly VAT-registered businesses (they reclaim the VAT you charge)
• You incur significant VAT on business purchases that you can reclaim
• You want to appear more established to business customers

It is not suitable if your customers are primarily consumers (individuals) who cannot reclaim VAT — they see the full VAT cost as a price increase.

VAT Rates

Zero-rated and exempt differ importantly: zero-rated businesses can reclaim input VAT; exempt businesses generally cannot.

Making Tax Digital for VAT

All VAT-registered businesses must file VAT returns using MTD-compatible software (Making Tax Digital). Since April 2022, this has applied to all VAT-registered businesses regardless of turnover.

What this means:

• You must keep digital VAT records
• You must file VAT returns directly from MTD-compatible software (e.g., QuickBooks, Xero, Sage, FreeAgent, or HMRC-approved bridging software)
• Manual returns via HMRC's online portal are no longer accepted

VAT Accounting Schemes

Standard VAT Accounting Charge VAT on sales, reclaim VAT on purchases, pay the difference to HMRC quarterly. Suitable for most businesses.

Cash Accounting Scheme (turnover under £1.35m) You only account for VAT when customers actually pay (not when you invoice). This protects cash flow for businesses with slow-paying customers — you don't pay HMRC before you receive the money.

Annual Accounting Scheme (turnover under £1.35m) File one VAT return per year instead of quarterly. Make nine monthly payments based on prior year liability. Reduces admin significantly for stable businesses.

Flat Rate Scheme (turnover under £150,000) Pay a fixed percentage of gross turnover to HMRC instead of calculating input/output VAT individually. You keep the difference between what you charge and what you pay.

Example: IT consultant charging £10,000 + £2,000 VAT = £12,000 gross

• Flat rate payment: £12,000 × 14.5% = £1,740
• Keep: £2,000 − £1,740 = £260 profit

Note: Businesses with limited input VAT benefit most from FRS. High-purchase businesses often fare better on standard accounting.

VAT on Imports and Exports (Post-Brexit)

Exports to EU: UK businesses charge 0% VAT on goods exported to the EU (zero-rated). EU recipients may pay import VAT in their country.

Imports from EU: UK businesses pay import VAT at the border (deferred VAT accounting available for VAT-registered importers).

Services to EU businesses: Generally outside UK VAT (reverse charge applies in the recipient country).

The rules are complex for cross-border digital services and the B2C One-Stop-Shop (OSS) scheme. Take specialist advice for significant EU trade volumes.

Common VAT Mistakes

Frequently Asked Questions

Q: I went over the threshold briefly due to one large contract. Do I still have to register? Yes — the threshold applies to rolling 12-month taxable turnover and there is no exception for one-off large transactions. You must register within 30 days of exceeding the threshold. However, once registered, you can apply to HMRC to use the "exception to registration" if you can demonstrate that your turnover is unlikely to continue above £90,000.

Q: Can I reclaim VAT on my car? Generally no — cars are specifically blocked from input VAT reclaim unless used exclusively for business (which is difficult to demonstrate for ordinary cars). Vans and commercial vehicles are fully reclaimable. Electric cars via salary sacrifice/company car arrangements have different rules.

Q: My business makes both VAT-taxable and VAT-exempt supplies — how does VAT work? This is "partial exemption." You can only reclaim the proportion of input VAT relating to taxable supplies. The calculation can be complex — specialist accountancy advice is usually worthwhile.