VAT Guide 2025/26
Value Added Tax (VAT) registration is a legal requirement for UK businesses that exceed the VAT threshold — and an optional choice for smaller businesses that want to appear more professional or reclaim VAT on purchases. This guide covers everything you need to know about when and how to register, which VAT scheme to use, and what to do after registration.
The VAT Registration Threshold 2025/26
Mandatory VAT Registration Threshold
£90,000
Taxable turnover in any rolling 12-month period
⚠️ This threshold has been frozen until at least April 2026 — but watch for Budget announcements
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period. This is not just the last financial year — it’s any rolling 12 months. Monitor your turnover monthly and register within 30 days of exceeding the threshold.
The 12-month rule catches many businesses out
You must monitor your turnover on a rolling 12-month basis — not just at year-end. If your cumulative turnover in any 12-month window exceeds £90,000, you must register. Missing this deadline results in backdated VAT liability plus penalties and interest.
Should You Register Voluntarily?
Even if your turnover is below £90,000, you can voluntarily register for VAT. There are good reasons to do so:
- Reclaim input VAT — you can reclaim VAT on business purchases (equipment, software, professional fees, vehicles)
- Professional credibility — many larger businesses prefer to work with VAT-registered suppliers
- Flat Rate Scheme — some service businesses profit from the Flat Rate Scheme even if below the threshold
Not always beneficial for B2C businesses
If your customers are mostly consumers (not VAT-registered businesses), registering voluntarily means your prices effectively increase by 20% — which may make you less competitive. Voluntary registration is most beneficial when selling to other VAT-registered businesses.
How to Register for VAT — Step by Step
1
Check Your Eligibility and Threshold
Confirm your taxable turnover has exceeded (or is forecast to exceed) £90,000 in a rolling 12-month window. Note the date it first exceeded the threshold — your effective registration date is the first day of the month following that date.
2
Set Up or Log Into Government Gateway
You register online via HMRC’s Government Gateway. If you don’t have a Government Gateway account, create one at gov.uk/log-in-register-hmrc-online-services.
3
Complete the VAT Registration Form (VAT1)
You’ll need: your business name and address, National Insurance number or UTR, business bank account details, date you exceeded the threshold, expected taxable turnover for the next 12 months, and details of any business partners or directors.
4
Choose Your VAT Accounting Scheme
During registration, you’ll choose which VAT scheme to use (Standard, Flat Rate, Cash Accounting, or Annual Accounting). See the schemes section below to pick the right one for your business.
5
Receive Your VAT Registration Number
HMRC typically issues your VAT number within 30 working days of completing your application. Your VAT number starts with GB and has 9 digits (e.g. GB 123 4567 89). You can start charging VAT from your effective registration date — even before receiving your number.
6
Set Up MTD-Compatible Software
Under Making Tax Digital for VAT, you must use HMRC-approved software to maintain digital records and submit VAT returns. Set this up before your first VAT return is due.
VAT Rates in the UK 2025/26
| VAT Rate | Rate | Applies To |
|---|---|---|
| Standard Rate | 20% | Most goods and services |
| Reduced Rate | 5% | Home energy, children’s car seats, some health products |
| Zero Rate | 0% | Most food, children’s clothing, books, newspapers, new homes |
| Exempt | N/A | Financial services, insurance, education, health, postal services |
| Outside the scope | N/A | Wages, dividends, MOT fees, some grants |
Zero-rated vs Exempt — an important distinction
Zero-rated and exempt may both seem like “no VAT” but they are very different. Zero-rated sales count toward your VAT threshold and you can reclaim VAT on costs relating to zero-rated sales. Exempt sales do not count toward your threshold, but you cannot reclaim VAT on costs relating to exempt sales.
Which VAT Scheme Should You Use?
Most Common
Standard VAT Accounting
Charge 20% VAT on sales. Reclaim VAT on purchases. Submit returns quarterly or monthly. Pay the difference to HMRC.
✓ Best for: Most businesses — gives full control
Flat Rate Scheme
Flat Rate Scheme (FRS)
Pay a fixed % of gross turnover to HMRC (varies by industry — e.g. 14.5% for IT consultants). Cannot reclaim input VAT on most purchases. Turnover must be under £150,000.
✓ Best for: Low-cost service businesses, can mean paying less VAT
Cash Accounting
Cash Accounting Scheme
Pay VAT when you actually receive payment (not when you invoice). Reclaim VAT when you pay suppliers. Turnover must be under £1.35m.
✓ Best for: Businesses with slow-paying clients or cash flow challenges
Annual Accounting
Annual Accounting Scheme
Submit one VAT return per year (instead of four). Make advance payments on account during the year. Turnover must be under £1.35m.
✓ Best for: Businesses who prefer less admin and predictable payments
What Happens After VAT Registration
- Add VAT to all invoices — you must charge VAT at the correct rate on all taxable supplies and show your VAT number on invoices
- Keep VAT records — maintain digital VAT records under MTD rules including sales invoices, purchase invoices, and bank statements
- Submit VAT returns — typically quarterly, within one month and seven days after the end of each VAT period
- Pay VAT on time — late payment incurs interest plus penalty points under the new points-based system
- Reclaim input VAT — include VAT on allowable business purchases in your return to reclaim it from HMRC
You can reclaim VAT on pre-registration purchases
When you register for VAT, you can reclaim VAT paid on goods purchased in the past 4 years (if still in use) and services purchased in the past 6 months — even before your VAT registration date. Keep all receipts and invoices.
VAT Penalties 2025/26
| Failure | Penalty |
|---|---|
| Late VAT registration | Up to 15% of VAT owed from date should have registered |
| Late VAT return submission | Points-based system — financial penalty at threshold (£200) |
| Late VAT payment (0–15 days) | No penalty if full payment made within 15 days |
| Late VAT payment (16–30 days) | 2% of outstanding amount |
| Late VAT payment (30+ days) | 2% of amount outstanding on day 30 + 2% on day 31 |
| Inaccurate VAT return | Up to 30% of extra VAT due (careless) / up to 100% (deliberate) |
Frequently Asked Questions
How long does VAT registration take?
HMRC typically processes VAT registration within 30 working days. You can use a temporary VAT number on invoices while you wait — your accountant can guide you on this. In urgent cases, HMRC can sometimes expedite processing.
What is my “effective date of registration”?
This is the date from which you are officially VAT-registered. It is normally the first day of the month after you exceeded the threshold. You must charge VAT on all taxable supplies from this date, even if you haven’t received your VAT number yet.
Can I deregister from VAT?
Yes. You can voluntarily deregister if your taxable turnover falls below the deregistration threshold of £88,000. You must deregister if you stop making taxable supplies. Contact HMRC or your accountant to deregister.