VAT Threshold Update: What £90,000 Means for Growing Businesses
The UK government’s decision to increase the VAT registration threshold to £90,000 from 1 April 2024 is welcome news for many small and growing businesses. After years of being frozen at £85,000, the higher threshold gives businesses more breathing room before being required to register for VAT.
However, this change does not remove VAT responsibilities altogether. Understanding when you must register, whether early registration would benefit you, and how to properly manage VAT records is essential to staying compliant and financially efficient.
In this guide, we explain what the £90,000 threshold means, how the rolling 12-month test works, the pros and cons of voluntary registration, and practical VAT bookkeeping tips to help you avoid penalties.
What Is the VAT Registration Threshold?
The VAT registration threshold is the level of taxable turnover at which a business must register for VAT with HMRC.
From 1 April 2024, the threshold is:
£90,000 in taxable turnover in any rolling 12-month period
If your taxable turnover goes above this amount, VAT registration becomes mandatory.
Taxable turnover includes:
- Sales of goods and services that are standard-rated (20%)
- Reduced-rated (5%)
- Zero-rated supplies
It does not include:
- Exempt supplies
- Outside-the-scope income
This increase helps protect small businesses from being forced to register for VAT too early, but it also means business owners must monitor turnover more carefully.
Understanding the Rolling 12-Month Test
One of the most misunderstood aspects of VAT is that HMRC does not look at your turnover on a tax-year or calendar-year basis. Instead, they use a rolling 12-month period.
How it works
At the end of each month, you must review the previous 12 months and total your taxable turnover.
If the total exceeds £90,000, you must register for VAT within 30 days.
Example
- You start trading in June
- Each month, you check turnover for the previous 12 months
- In February, your rolling total reaches £92,000
You must register for VAT by 31 March, and VAT becomes chargeable from 1 April.
The Future Turnover Test
You must also register if you expect your taxable turnover to exceed £90,000 in the next 30 days alone.
Example:
- You win a large contract worth £120,000
- Even if your past turnover is low, VAT registration becomes mandatory immediately
This catches many fast-growing businesses by surprise.
What Happens After You Register?
Once registered:
- You must charge VAT on taxable sales
- Submit VAT returns (usually quarterly)
- Pay any VAT due to HMRC
- Keep digital VAT records
- Comply with Making Tax Digital (MTD) for VAT
Failure to register on time can result in backdated VAT, penalties, and interest.
Should You Register Early (Voluntary Registration)?
You do not need to wait until you reach £90,000. Many businesses choose to register voluntarily.
Advantages of Registering Early
1. Reclaim VAT on expenses
You can reclaim VAT on business purchases, improving cash flow.
2. Professional image
Being VAT registered can enhance credibility with larger clients.
3. Avoid sudden price changes later
Registering early prevents a sudden price increase once mandatory.
4. Better systems from the start
Early VAT registration often encourages better bookkeeping and financial discipline.
Disadvantages of Registering Early
1. Higher prices for non-VAT customers
If your customers are not VAT registered, adding VAT may make you less competitive.
2. More admin
Quarterly VAT returns and record-keeping requirements increase.
3. Cash flow pressure
You collect VAT but must pass it to HMRC—poor planning can cause short-term cash issues.
When Early Registration Makes Sense
- You sell mainly to VAT-registered businesses
- You have significant VAT on costs
- You expect rapid growth
- You want a professional, scalable structure
Choosing the Right VAT Scheme
Once registered, HMRC offers different VAT schemes that can affect how much you pay:
Standard VAT Accounting
- VAT is calculated on invoices issued and received
Cash Accounting Scheme
- VAT based on the money actually received and paid
- Helps cash flow for small businesses
Flat Rate Scheme
- Pay a fixed percentage of turnover
- Less admin, but not always cost-effective
Choosing the wrong scheme can cost thousands over time. Professional advice is strongly recommended.
VAT Bookkeeping Tips
Good VAT bookkeeping prevents errors, penalties, and stress.
1. Separate Business Bank Account
Keep business transactions separate from personal spending.
2. Keep Digital Records
MTD for VAT requires digital records and compatible software.
3. Save VAT Invoices
Ensure invoices show:
- Supplier name and VAT number
- VAT amount
- Date
- Description
4. Reconcile Monthly
Do not wait until quarter-end—review VAT figures monthly.
5. Check VAT Codes
Incorrect VAT coding is one of the most common causes of errors.
Common VAT Mistakes to Avoid
- Missing the registration deadline
- Charging VAT before being registered (without permission)
- Reclaiming VAT without valid invoices
- Using the wrong VAT rate
- Submitting late VAT returns
- Poor record-keeping
These mistakes can trigger HMRC penalties and investigations.
VAT Penalties You Should Know About
HMRC operates a points-based penalty system:
- Late submissions accumulate points
- Reaching a threshold triggers a financial penalty
- Late payments attract interest
Penalties can apply even when no VAT is owed.
How IR Advisory Helps
At IR Advisory, we support businesses at every stage of their VAT journey:
- VAT registration and deregistration
- Scheme selection and setup
- Bookkeeping and MTD-compliant software
- Quarterly VAT returns
- HMRC correspondence and compliance checks
- Ongoing VAT advice
Our goal is to make VAT simple, accurate, and stress-free—so you can focus on growing your business.
Final Thoughts
The increase of the VAT threshold to £90,000 offers welcome flexibility, but it also places responsibility on business owners to monitor turnover closely and plan ahead.
Whether you are approaching the threshold, considering voluntary registration, or already VAT registered, having the right systems and professional support can save time, money, and frustration.
If you’d like guidance on VAT registration or ongoing compliance, IR Advisory is here to help.
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