The Bank of England’s latest forecast shows that inflation is set to rise again, potentially reaching 3.7%, and remaining above the 2% target until the end of 2027. The recent hike in employer National Insurance contributions (secondary Class 1 NICs) and the uplift in both the National Minimum Wage and National Living Wage may also exacerbate inflationary pressures if businesses decide to pass on increased costs to consumers.
As costs climb, prices are often raised to maintain profitability, which in turn increases turnover—potentially pushing a business past the VAT registration threshold. Navigating VAT can be challenging, but knowing when you must register is crucial to staying compliant and avoiding costly penalties. Here we take a closer look at the main factors that determine when VAT registration is required.
When you must register for VAT
For UK-based businesses, you must VAT register when either :
- Your VATable supplies in the last 12 months are over £90,000;
- Or you expect your VATable supplies to go over £90,000 in the next 30 days – this is not usually relevant of course for smaller businesses.
The first bullet point above catches a lot of businesses unaware. It is important to stress that you need to look at your VATable supplies at the end of every month and total up the last 12 months (it is a running total). It is not according to accounts or tax year.
VATable supplies are any supply made in the UK that is not exempt from VAT.
When to notify HMRC
If you exceeded £90,000 VATable supplies in the last 12 months, you must VAT register with HMRC within 30 days. You will be effectively VAT registered from the first day of the second month after you go over the threshold.
For example:
If you go over the VAT registration threshold on 30 June 2025 (as your VATable supplies for the period 1 July 2024 to 30 June 2025 exceeds £90,000):
- You will need to notify HMRC by 30 July 2025 and;
- Will be VAT registered on 1 August 2025.
If you do not register with HMRC in time there are penalties.
If you breach the VAT registration threshold, and can prove to HMRC that this was a singular occurrence or that you are likely to fall below the de-registration threshold within the next 12 months (for example due to a one-off contract in that year which will not be repeated), you can apply for an exception from VAT Registration.
If you feel this may apply, do discuss with your accountant/tax adviser ASAP after you exceed the VAT registration threshold (do not just ignore it) as you are still subject to the above time limits to register for VAT and HMRC has to be satisfied that you meet the conditions for exception (it is up to HMRC discretion).
If you have any queries and would like to discuss further, do contact your normal M+A Partners contact or Mary-Anne Sargeant on 07917 530018 or email mary-anne.sargeant@mapartners.co.uk.
