Understanding VAT registration thresholds – a guide for UK businesses

Although the VAT registration threshold could seem irrelevant when you’re running a small business, you need to know how it can affect your tax obligations. Knowing this helps you manage your Value Added Tax (VAT) Returns and keeps you on the right side of the law.

In this guide we explain what the VAT threshold is and what to do if you cross it.

What is VAT and the VAT registration threshold?

VAT is the tax added to most products and services in the UK.

The UK VAT registration threshold is the level of a business’s annual VAT-taxable turnover (sales revenue) at which the business must register for VAT. VAT-taxable turnover is any turnover from goods or services that are not exempt from VAT. Once you cross this threshold and register for VAT you have extra responsibilities, such as charging VAT on your goods or services and submitting VAT returns to HMRC.

Calculating the necessary VAT depends on the category your products or services fall into. Most goods and services fall within the 20% VAT rate, although some products and services, like books, children’s clothing and education, are partially or fully exempt.

Current VAT registration thresholds in the UK

The UK VAT registration threshold changes often, sometimes each year, so keep an eye on what the latest threshold means for your business.

In previous years the tax registration threshold has increased incrementally:

• 2014–2015 – £81,000
• 2015–2016 – £82,000
• 2016–2018 – £83,000
• 2018–2023 – £85,000

In the 2023 tax year the threshold was £85,000. The current threshold, applicable after 1 April 2024, is now £90,000.

Impact of VAT registration on your business

The VAT threshold is based on the annual turnover of goods or services you provide that are not exempt from VAT. Once your small business’s turnover reaches the VAT threshold on non-exempt goods or services, you have 30 days to register for VAT with HMRC.

Registering for VAT brings some financial and operational changes to your business. Once you’ve registered you’ll need to:

• Charge VAT on your goods and services
• Pay VAT on the goods and services supplied by your vendors
• Submit a VAT return to HMRC every year
• Maintain a VAT account and records

Registering voluntarily for VAT

Even if you don’t meet the VAT threshold it may be beneficial to register voluntarily. For example, being registered could make your goods and services cheaper than your competitors (and therefore more appealing to customers) as clients can claim back the VAT on any goods or services they buy from you if they’re also registered for VAT.

If you’re just setting up your business but expect to reach the VAT threshold quickly, it can also be good to register as you can then claim back the VAT you spent on any setup costs, saving you money in the short term.

Latest updates on VAT registration thresholds

• The VAT registration threshold for 2024 has increased to £90,000 from 1 April 2024, up from £85,000. So if your business isn’t yet registered for VAT (because you haven’t met the threshold in the past, for example) and turnover is below £90,000 for the last 12 months, you won’t need to register this year either. You can, of course, register voluntarily.
• If your business is already registered for VAT but you won’t meet the VAT threshold in the 2024 fiscal year, you can now deregister for VAT if your turnover dips below £88,000 (up from £83,000 in past tax years).

Prepare for changes in VAT thresholds

It’s good practice to review your business’s finances throughout the tax year so you know whether and when you need to register for VAT. And if you do financial forecasting as well, you’ll give yourself more time to transition to VAT registration, if you need to.

Remember to keep an eye on HMRC for updates on VAT thresholds so you can prepare for them.

FAQs on VAT registration thresholds

Should I register for VAT if I earn under 90,000?

No – you don’t need to register for VAT if your turnover is under £90,000. To figure out if voluntary registration is right for you, consider whether:

• Most of your clients are VAT registered themselves – if so, registering for VAT would give you an edge on your competitors
• Your new company will soon cross the threshold – it’s worth registering to reclaim the VAT on some of your startup costs

What is the UK VAT registration threshold for 2024?

From 1 April 2024 the VAT registration threshold is £90,000. If your VAT-taxable turnover is below £90,000 in the 2024 fiscal year, you do not need to register for VAT.

Who is exempt from VAT registration?

‘Zero-rated’ businesses, such as those in publishing and education, are exempt from VAT registration, as outlined on the HMRC website. If all the goods or services you provide are exempt from VAT, you also do not have to register. If you’re VAT registered and incur VAT on items used to make exempt supplies, your business is partly exempt.

How to register for VAT

Registering for VAT is a quick, simple process that can be done online via the HMRC website, or by post. In order to register, you’ll need:

• Your National Insurance number or tax identifier (your Unique Taxpayer Reference – UTR)
• Details of other businesses you’ve owned in the past two years
• Your business bank account details

For the full step-by-step process, check out our guide on registering for VAT.

Use Xero to manage your VAT

The VAT registration threshold can seem overwhelming, which is why using accounting software like Xero for VAT can help streamline the process. Xero is designed to make it easier to organise your VAT-related information and file your taxes on time.

When you register for VAT, you need to specify which VAT accounting scheme you plan to use, as this is how HMRC calculates whether you owe VAT or need a refund.

Filing your VAT returns with Xero

Xero makes it easier to file your VAT returns. It automates your calculations, keeps records of your sales and purchases together, and lets you submit your VAT returns to HMRC directly from Xero’s platform.

Stay ahead with Xero's VAT features

Getting to grips with VAT registration thresholds can help you confidently move forward with your business. Keep an eye out for any announcements from HMRC each year to see if the VAT thresholds are changing, and check your turnover to see whether you’re crossing the threshold.

And when you’re ready to file your VAT returns, accounting software like Xero can smooth your process, so you comply with your tax obligations.

Explore Xero’s comprehensive VAT management features to find out how Xero can make your tax compliance easier, and streamline your financial operations.