- You must register once your VAT taxable turnover in any rolling twelve months passes £90,000, whatever your financial year says (As of Oct 2026)
- You must also register if you expect to pass £90,000 in the next thirty days alone (As of Oct 2026)
- Once registered you charge VAT, usually at the standard 20%, which raises your price to consumers who cannot reclaim it (As of Oct 2026)
- You reclaim VAT on purchases, which helps if you buy a lot of materials
- Returns are quarterly under Making Tax Digital, so you need compatible software
- The Flat Rate Scheme can be simpler, but it reclaims almost nothing and penalises businesses that buy few goods
The test is rolling twelve months, not your financial year. Check it monthly, because crossing it late is a penalty.
Your prices effectively rise for consumers who cannot reclaim. Either you absorb it and lose margin, or you raise prices and lose some jobs.
You reclaim on materials, which offsets part of it. At your material spend that recovers a meaningful share.
Returns go quarterly under Making Tax Digital, so you need compatible software.
Want MAYA to model absorbing it against passing it on?
It knew that consumer customers make VAT a pricing problem, not a paperwork one.
The registration test
Tell HMRC within 30 days of the end of the month in which your rolling twelve-month taxable turnover passed £90,000. You are then registered from the first day of the second month after that month. You can ask to deregister if you expect taxable turnover over the next 12 months to be £88,000 or less. The threshold has been £90,000 since 1 April 2024, so anything quoting £85,000 is out of date. Turnover means sales, not profit. As of Oct 2026.
Value Added Tax Act 1994 Sch 1 paras 1, 4 and 5; HMRC VAT Notice 700/1
| Your price before VAT | £1,000 |
| VAT at 20% | £200 |
| What the customer pays | £1,200 |
| What you keep if you hold the price at £1,000 | £833.33 |
£1,000 now includes VAT, so £1,000 / 1.2 = £833.33 is yours and £166.67 goes to HMRC. That is the real choice: raise prices or absorb it.
Late returns and late payment
Each late return earns a penalty point. At 4 points on quarterly returns you pay £200, and £200 for every further late return. VAT paid late costs nothing within 15 days, 3% of the VAT owed if paid between days 16 and 30, and from day 31 a further 3% plus a daily penalty at 10% a year on the balance, with interest on top. As of Sep 2026.
HMRC guidance: Penalty points and penalties if you submit your VAT Return late; How late payment penalties work if you pay VAT late
The Flat Rate Scheme trap
You pay a fixed percentage of your VAT-inclusive turnover and reclaim almost no input VAT. If your spending on goods is under 2% of that turnover, or under £1,000 a year where that is the larger figure, you are a limited cost trader at 16.5%, which almost always costs more than normal VAT accounting. It is tested every VAT period. As of Oct 2026.
Value Added Tax Regulations 1995 regs 55A to 55V; HMRC VAT Notice 733
If your customers are consumers, registration is a real price rise for them. If your customers are VAT-registered businesses, it costs them nothing and you gain reclaims. That difference should shape how you plan for it.
In construction, the domestic reverse charge means most building work for a VAT-registered contractor, paid under CIS, is invoiced without VAT and the contractor accounts for it instead (VAT Act 1994 s.55A). It never applies to homeowners, or to end users who confirm that status in writing.
My turnover over the last twelve months is around [amount] and growing by about [amount] a month. My customers are mostly [consumers or VAT-registered businesses]. Tell me when I cross the threshold, what registration would do to my pricing and my margin, and what I need to do and by when.
Every lesson ends with a question to hand to a Greymill specialist, who answers with what it knows about your business.