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You’ll be familiar with Value Added Tax (VAT) from paying it every day when purchasing goods and services. But what about if you’re self-employed and running your own small business?
Understanding what the VAT threshold is and how VAT works is crucial to fulfilling your obligations, remaining compliant and avoiding any fines or penalties.
VAT is a consumption tax that’s levied at 20% on most goods and services sold in the UK, but there are some exceptions with reduced rate items taxed at 5% and zero rate items untaxed. There are 4 different VAT schemes – The Standard Accounting Scheme, Flat Rate Scheme, Cash Accounting Scheme and Annual Accounting Scheme – each with their own nuances and eligibility criteria to enable business to use the one that best suits their circumstances.
VAT-registered businesses must charge VAT on goods or services that they sell, submit VAT returns to HMRC and they can usually reclaim VAT paid on their purchases. Businesses must register for VAT when their turnover reaches, or is expected to reach, the mandatory VAT registration threshold.
In this post we’ll explore the VAT threshold, how to register for VAT and the advantages and disadvantages of registering voluntarily and how to stay compliant with your obligations including MTD for VAT.
What Is the VAT Threshold?
The VAT threshold is the amount of annual VAT-taxable turnover at which businesses are legally required to register for VAT. For the 2025/26 tax year, the VAT threshold is £90,000 which means that if your rolling monthly turnover exceeds this level then you must register.
You also have to register if you expect it to exceed this amount in the next 30 days if, for example, you’ve secured a large contract.
Your VAT-taxable turnover comprises the total value of the goods and services you’ve sold that are not exempt from VAT. This includes standard rate items taxed at 20% and reduced rate items (taxed at 5%) which includes items such as mobility aids, certain residential renovations and conversions and children’s car seats. Income from VAT-exempt items doesn’t count towards your VAT-taxable turnover.
Voluntary VAT Registration
If your turnover is below the VAT threshold, you can still register for VAT voluntarily and there are advantages and disadvantages to doing this which should be carefully considered. If you register you can reclaim VAT on eligible business purchases which can result in significant cost savings as well as improving cash flow. VAT-registration can also improve your business credibility, especially in the eyes of other businesses and prospective clients
There will be extra admin needed of course, including maintaining digital records and filing VAT returns with HMRC and if you primarily trade with non-VAT registered businesses, they will have to pay a higher price for your goods or services.
Whether voluntary VAT-registration is a good move is dependent on your unique circumstances. If you primarily trade with other VAT-registered businesses who can also reclaim their VAT, this keeps your pricing competitive and if you have high running costs or startup costs, more VAT can be reclaimed on those purchases. Our expert accountants can advise you on whether voluntary VAT registration would be beneficial for you.
How do you Register for VAT?
If you’ve hit the VAT threshold, or expect to, then you have 30 days to notify HMRC and complete the registration process. To do this you need to visit the VAT registration page on the Government website. You need to be logged into your Government Gateway account and will need to confirm your contact details and business name, what your business does, your Unique Taxpayer Reference number, your National Insurance if you’re a sole trader, plus your bank details and expected level of turnover.
Once you’ve submitted your registration form you can expect to receive your VAT registration certificate from HMRC within 30 days. This will confirm various details including when you must submit your first VAT return and payment.
Once registered, you need to understand your obligations to ensure compliance, charging VAT on taxable sales, keeping VAT records and a VAT account, issuing VAT invoices to clients and customers as well as compliance with MTD for VAT.
Making Tax Digital (MTD) for VAT
Making Tax Digital is an ongoing Government initiative to modernise and digitise the UK tax system by mandating businesses to keep their records digitally and submit tax returns to HMRC electronically using approved software. VAT was the first tax to be mandated as part of MTD in April 2022 so if you’re VAT registered, including voluntary registrations, then you must comply with MTD for VAT rules.
Although the transition to digital may be a big change for some businesses, it can be very beneficial with accounting software automation doing the heavy lifting by calculating your tax returns for you and it also promotes better financial management and improved accuracy which reduces the chances of errors and penalties.
Gorilla Accounting and VAT
Effectively managing your VAT obligations can be complex and also time consuming which isn’t ideal for busy self-employed people and working with an accountant can make a huge business difference beyond just your VAT obligations.
At Gorilla, our accountancy packages are all inclusive with fixed, transparent fees and no nasty surprises. You’ll work with your own dedicated accountant who will expertly manage all your business and personal accounting needs, including your VAT obligations.
If you’re below the mandatory registration threshold they will assess your business goals and unique circumstances and advise whether VAT registration is right for you, and which VAT scheme is the best fit.
You also receive inclusive full access to FreeAgent cloud accounting software at no extra cost saving you up to £330 a year. FreeAgent can calculate your VAT returns while you work and digitally submit your VAT returns directly to HMRC as well as any other taxes you’re liable for.
A fast turnaround to your queries is guaranteed no matter how many times you contact us. Our Client Service Guarantee means that if you contact before 3pm on any working day we’ll issue you with a £50 payment if we don’t respond the same day.
For expert advice on VAT or if you’d like to learn more about our accounting service you can request a callback or get an instant online quote here.
