What is the current VAT threshold in the UK?

Learn the current VAT registration threshold in the UK, when you must register for VAT, and what happens if your business goes over the limit or chooses to register voluntarily.

The VAT threshold is a fundamental concept for any business operating in the UK, yet despite its importance, many business owners still misunderstand how it works, how to calculate it, and how it affects their legal obligations. I am often asked by clients not just what the threshold number is, but how it applies, what turnover counts towards it, what happens when it is breached, and how to plan around it effectively.

In this article, I am going to explain in depth and in plain English what the current VAT threshold in the UK is, how it applies to businesses, and how to manage VAT registration and compliance once the threshold is in view. I will also cover common misconceptions, real world examples, how the threshold is measured, what counts as taxable turnover, and why getting this right matters for both small enterprises and growing companies.

By the end of this article, you should have a solid understanding of the UK VAT threshold, how HMRC calculates it, and what actions you need to take as a business owner to stay compliant and avoid unexpected VAT bills or penalties.

1. The current UK VAT threshold

As of the most recent HMRC guidance:

  • The VAT registration threshold is £85,000 of taxable turnover in a rolling 12 month period.

This means that if your taxable turnover exceeds £85,000 in the last 12 months, you are required by law to register for VAT with HMRC.

It is important to emphasise that this threshold applies across all business structures, whether you operate as a sole trader, partnership, limited company, LLP, or another legal entity. VAT thresholds are based on turnover for VAT purposes, not profit, and not your accounting or tax year.

2. What counts as taxable turnover

Understanding what counts towards the VAT threshold is one of the most important aspects of VAT compliance.

Taxable turnover includes all amounts charged for goods and services that would normally be subject to VAT if you were already VAT registered, including:

  • Standard rated supplies (usually at 20%)

  • Reduced rated supplies (for example at 5%)

  • Zero rated supplies

  • Some goods and services supplied to customers in the UK

Taxable turnover does not include:

  • VAT exempt supplies

  • Income that is outside the scope of VAT (for example certain financial or insurance services)

  • Sales made entirely outside the UK (in many cases)

Most small business owners are surprised by how broadly VAT defines taxable turnover, so understanding this is vital.

3. Rolling 12 month calculation explained

Unlike other business thresholds, the VAT threshold is not tied to:

  • Your accounting reference date

  • The tax year (6 April to 5 April)

  • The calendar year

Instead, HMRC uses a rolling 12 month calculation.

This means you look at the total taxable turnover for the past 12 months, calculated at the end of each month. If that total exceeds £85,000 at any point, VAT registration becomes mandatory.

For example:

  • If your taxable turnover from August last year to July this year is over £85,000, you must register for VAT

  • You do not wait until the end of a financial year

  • You do not round up to the nearest quarter or period

This rolling approach catches many growing businesses out when they least expect it.

4. When you must register for VAT

Under the VAT rules, you must register for VAT with HMRC if either:

  • Your taxable turnover in the last 12 months exceeds £85,000

  • You reasonably expect your taxable turnover to exceed £85,000 in the next 30 days alone

The second point is crucial. If you win a large contract, or sign an agreement that will push turnover over £85,000 within a 30 day period, you cannot wait until the revenue is received. You must register as soon as it is reasonably expected.

This often applies to companies taking on wholesale contracts, large services, or high value projects.

5. What happens after you cross the threshold

Once you know you have exceeded or will exceed the threshold:

  • You must register for VAT with HMRC

  • The date of VAT registration will depend on your specific circumstances

  • You will be issued a VAT number and deadlines for returns and payments

Importantly, HMRC expects compliance from the effective date of registration, and late registration can result in:

  • Backdated VAT assessments

  • Interest charges

  • Penalties

Late registration is one of the most common VAT problems I see in my practice.

6. Registering early, and voluntary registration

You can choose to register for VAT voluntarily even if your taxable turnover has not reached £85,000.

Reasons to register voluntarily include:

  • Reclaiming VAT on business inputs

  • Appearing larger and more established in your market

  • Avoiding a sudden VAT liability once the threshold is reached

  • Selling to VAT registered customers (for whom VAT is reclaimable)

However, voluntary registration also brings responsibilities, such as:

  • Submitting VAT returns

  • Charging VAT to customers

  • Dealing with Making Tax Digital requirements

  • Managing VAT accounting and compliance

This is a commercial decision as much as a compliance one.

7. How VAT registration works in practice

Once you decide or are required to register, the practical steps usually involve:

  • Applying online via the HMRC VAT registration service

  • Providing business information and turnover estimates

  • Choosing a VAT accounting scheme (standard, cash accounting, flat rate, etc.)

  • Receiving your VAT registration number and effective date

  • Starting to issue VAT invoices and submit VAT returns

The effective date of registration is usually tied to when you exceeded (or expected to exceed) the threshold, not necessarily when your application is approved.

8. Transitional rules

In some cases, transitional or temporary rules apply, such as:

  • Group registrations

  • Changes of business structure

  • Acquisitions and disposals of businesses

These rules can affect how turnover is calculated or carried over between entities, so specialist advice is often advisable.

9. De-registration thresholds

HMRC also allows businesses to apply for VAT de-registration if taxable turnover falls below a certain level.

The de-registration threshold is:

  • When your taxable turnover is expected to be less than £83,000 over the next 12 months

This threshold gives a buffer below the £85,000 registration limit, allowing small businesses some breathing room if turnover falls.

De-registration stops VAT obligations, but it may trigger VAT adjustments on stock and assets remaining at the end of registration. These adjustments can have cash flow consequences if not planned properly.

10. How taxable turnover is calculated

Turnover for VAT threshold purposes is not based on profit or net of costs. Instead, it is based on:

  • The value of sales or supplies you have made that would be taxable if you were VAT registered

  • Calculated on an invoice basis for most businesses

  • Including zero rated supplies but excluding exempt income

Importantly, turnover is measured before deducting VAT, even if you are not yet VAT registered. This often surprises new businesses, who mistakenly think that VAT would be deducted before calculating the threshold.

11. Examples of taxable and non taxable turnover

To illustrate:

Taxable turnover includes:

  • Standard rated sales

  • Zero rated sales

  • Sales to the UK where VAT would have been charged if registered

Non taxable turnover includes:

  • VAT exempt supplies (certain financial services, insurance, some education)

  • Sales outside the UK where UK VAT would not apply

  • Income not related to trading activity

Understanding what counts towards the threshold is as important as knowing the £85,000 number itself.

12. Turnover in practice, common pitfalls

In my experience, businesses mistakenly include or exclude items incorrectly when calculating turnover, such as:

  • Including exempt or outside scope income by accident

  • Excluding zero rated sales

  • Misunderstanding how retained deposits or retentions count

  • Using accounting profit figures rather than actual sales values

These issues often arise because business owners conflate VAT turnover with accounts turnover or taxable profits. VAT turnover is its own measure, defined by legislation, and must be monitored carefully.

13. Monitoring the threshold month by month

Because the threshold is measured on a rolling 12 month basis, it is important to:

  • Monitor turnover monthly

  • Add new sales as they arise

  • Ensure calculations are up to date

  • Plan ahead if growth is rapid

Waiting until you receive a letter from HMRC is too late. Regular monitoring ensures VAT registration happens when required, not after penalties are due.

14. What happens when you register

Once registered, you must:

  • Charge VAT on taxable sales

  • Issue VAT invoices when appropriate

  • Keep digital VAT records

  • Submit VAT returns on time (usually quarterly)

  • Pay VAT to HMRC on schedule

Registration brings ongoing compliance obligations that are as important as crossing the threshold in the first place.

15. VAT invoices and compliance

After registration, you must issue VAT invoices that include:

  • Your business and address

  • Your VAT registration number

  • Net, VAT and gross amounts

  • The correct VAT rate applied

Failing to issue compliant invoices can affect your ability to reclaim VAT on costs and can trigger penalties from HMRC.

16. How I advise clients to manage the threshold

In practice, I always recommend:

  • Setting up simple turnover monitoring tools

  • Reviewing rolling 12 month totals monthly

  • Considering voluntary registration before the threshold is reached

  • Understanding what counts as taxable turnover

  • Seeking advice when large contracts are secured

This prevents late registration surprises and gives businesses control over their VAT position.

17. Threshold examples, real world scenarios

Example 1: Freelance consultant

A freelance consultant provides services and has a few big projects. After nine months, the rolling 12 month taxable turnover exceeds £85,000, even though the accounting year is still six months away. This triggers compulsory VAT registration because the threshold has been crossed on a rolling basis.

Example 2: Retailer with seasonal peaks

A retailer has high seasonal sales in Q4. After December, the rolling 12 month total exceeds £85,000, even though annual accounts may not look above the threshold. This again triggers a registration requirement. Monitoring rolling turnover month by month makes this clear well before penalties arise.

18. Threshold and business structure changes

Changing your business structure, such as incorporating a sole trader into a limited company, affects how VAT is calculated. In some cases, turnover may reset or require apportionment between the old and new entity.

This is a common area where VAT registration mistakes occur, because business owners assume a simple continuity rather than understanding how legal entities affect VAT status.

19. Growing beyond the threshold gracefully

For many businesses, reaching £85,000 is a milestone. It often means growth, new customers, and increased demand. However, it also means new VAT responsibilities.

Planning ahead, understanding the impact on pricing, and building VAT into cash flow forecasts can make this transition smooth rather than stressful.

20. Why getting the VAT threshold right matters

Failing to register on time can result in:

  • VAT assessed retrospectively

  • Interest on unpaid VAT

  • Penalties based on late registration

  • Additional administrative burden

The risk is not just a fine. It is unexpected cash outflows, compliance headaches, and potential damage to client relationships if VAT has not been treated correctly.

21. How I help businesses with VAT threshold decisions

When I work with clients approaching the threshold, I:

  • Review turnover definitions

  • Clarify what counts as taxable income

  • Set up monitoring systems

  • Advise on voluntary registration timing

  • Help with software setup for VAT compliance

This approach removes uncertainty and gives business owners confidence.

22. Threshold myths and misconceptions

Over the years, I have encountered many myths, such as:

  • “Only limited companies have to register”

  • “Profit figures determine VAT registration”

  • “VAT is voluntary until you choose to register”

  • “You only look at turnover once a year”

None of these are true. The VAT threshold is very specific, and misunderstanding it is almost always costly.

23. Final thoughts

The current VAT threshold in the UK is £85,000 of taxable turnover in a rolling 12 month period. It applies to all business types, and monitoring it properly is essential to avoid penalties and ensure smooth VAT compliance.

Understanding what counts towards the threshold, how it is measured, and how it interacts with your business cycle is as important as knowing the number itself. Turnover must be reviewed monthly, and actions taken promptly when thresholds are approached or expected to be exceeded.

In my experience, VAT threshold issues are rarely about numbers alone. They are about systems. Businesses that establish robust turnover tracking, understand what counts as taxable income, and plan ahead rarely face VAT surprises. Those that wait until a letter from HMRC arrives tend to learn the hard way.

If your business is approaching the threshold, or if you are unsure how your income is being calculated, getting clarity now can save significant time, money, and stress later. Knowing the VAT threshold is one thing. Understanding how it applies to your business in practice is another, and that is where careful planning makes all the difference.