Tax · VAT

VAT for small business: the £90,000 threshold, deadlines, rates and the Flat Rate Scheme — how to avoid paying tax out of pocket

Q: What are the VAT rates?

Standard — 20%, on most goods and services. Reduced — 5%: children’s car seats, home energy. Zero — 0%: most food, children’s clothes. A separate category is exempt: postage stamps, financial and insurance transactions, property deals. The difference between 0% and exempt matters — see the next question.

Q: Who must register?

Two triggers. First: taxable turnover over the last 12 months (a rolling window, not the calendar year!) tops £90,000. Second: you realise you will cross the threshold within the next 30 days — a big contract signed, say. And a special case: a business based outside the UK that sells into it must register from the first pound, with no threshold at all.

Q: What are the deadlines — and what if you are late?

Crossed the threshold over 12 months — apply within 30 days of the end of the month in which it happened; registration takes effect on the first day of the second month after. GOV.UK’s own example: you cross on 15 July — apply by 30 August, you are registered from 1 September. Expecting to cross within 30 days — apply by the end of those 30 days, and registration runs from the day you realised. You owe HMRC from your effective date — even if you never collected 20% from customers.

Q: What is the Flat Rate Scheme?

A simplification for small businesses with turnover up to £150,000. You still charge customers 20%, but pay HMRC a fixed percentage of turnover (set per industry) and keep the difference. The price of simplicity: no reclaiming VAT on purchases, except capital assets over £2,000. In your first registered year the rate carries a 1% discount. The scheme does not combine with Cash Accounting, and you cannot rejoin within 12 months of leaving.

Q: When can you deregister?

If turnover falls below the deregistration threshold — £88,000 — you can ask HMRC to cancel the registration. It sits deliberately below the entry threshold so borderline businesses do not bounce in and out every month.

Turnover of £90,000 over any rolling 12 months means you must register for VAT within 30 days; late means paying the 20% yourself. The GOV.UK rules: the zero-rate catch in counting the threshold, when voluntary registration pays, the Flat Rate Scheme up to £150,000 and the £88,000 deregistration threshold.

Published 26 September 2026, 15:28 5 min read Editorial

A coffee shop storefront on a square in London — A London coffee shop. VAT sits in the price of almost every purchase — the standard rate is 20%. Photo: ONLYWAY NEWS

VAT sits in the price of almost everything sold in Britain. While your business is small it does not “see” you — but invisibility has a precise boundary: turnover of £90,000 over the last 12 months. Cross it and you must register, start charging 20% and file returns through software. Register late, and the tax for the missed period comes out of your own pocket.

The GOV.UK rules explained: how the threshold is really counted (there is a zero-rate catch), the registration deadlines, when registering voluntarily pays off, and what the Flat Rate Scheme simplification is.

What are the VAT rates?

Standard — 20%, on most goods and services. Reduced — 5%: children’s car seats, home energy. Zero — 0%: most food, children’s clothes. A separate category is exempt: postage stamps, financial and insurance transactions, property deals. The difference between 0% and exempt matters — see the next question.

Who must register?

Two triggers. First: taxable turnover over the last 12 months (a rolling window, not the calendar year!) tops £90,000. Second: you realise you will cross the threshold within the next 30 days — a big contract signed, say. And a special case: a business based outside the UK that sells into it must register from the first pound, with no threshold at all.

How do you count turnover correctly?

The catch: “taxable turnover” is not just what you would charge 20% on. It includes zero-rated goods (food, for example), reduced-rate goods, goods hired out, bartered goods and gifts from business stock. Only exempt and out-of-scope items stay out. A bakery turning over £95,000 on zero-rated bread has already crossed the threshold.

What are the deadlines — and what if you are late?

Crossed the threshold over 12 months — apply within 30 days of the end of the month in which it happened; registration takes effect on the first day of the second month after. GOV.UK’s own example: you cross on 15 July — apply by 30 August, you are registered from 1 September. Expecting to cross within 30 days — apply by the end of those 30 days, and registration runs from the day you realised. You owe HMRC from your effective date — even if you never collected 20% from customers.

Is voluntary registration worth it?

You can register at any turnover. It pays when your customers are VAT-registered businesses (they reclaim your VAT anyway, and you start reclaiming tax on your own purchases) or when you invest heavily in equipment. It hurts when you sell to individuals: for them your prices simply rise 20%. If you are self-employed and only approaching the threshold, keep records from day one — the basics are in our guide to working for yourself.

How does registration work?

Online, through your HMRC account. An individual or partnership needs: a National Insurance number, photo ID, bank details, UTR, last year’s turnover and a 12-month estimate. A company — its registration number, UTR, bank details and the same figures. After registering you get a 9-digit VAT number (mandatory on every invoice), your effective date and the deadline for the first return. HMRC signs you up to Making Tax Digital for VAT automatically — returns go only through compatible software.

What is the Flat Rate Scheme?

A simplification for small businesses with turnover up to £150,000. You still charge customers 20%, but pay HMRC a fixed percentage of turnover (set per industry) and keep the difference. The price of simplicity: no reclaiming VAT on purchases, except capital assets over £2,000. In your first registered year the rate carries a 1% discount. The scheme does not combine with Cash Accounting, and you cannot rejoin within 12 months of leaving.

When can you deregister?

If turnover falls below the deregistration threshold — £88,000 — you can ask HMRC to cancel the registration. It sits deliberately below the entry threshold so borderline businesses do not bounce in and out every month.

What should you check today, in short?

Count your taxable turnover for the last 12 months — as a rolling window, zero-rated sales included. Over £80,000 — start checking monthly and think about an accountant. Signed a contract that throws you over £90,000 within 30 days — register now. And remember: from your effective date, every invoice without a VAT number is your tax out of your pocket.

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