Inflation remains firmly in focus for businesses. The Office for National Statistics reported that the Consumer Prices Index (CPI) rose to 3.4% in the year to December 2025, up from 3.2% in November, driven largely by higher alcohol, tobacco and transport costs. This marks the first increase since July.
While economists expect inflationary pressures to ease as 2026 progresses – potentially moving closer to the Government’s 2% target by mid-year – the outlook remains uncertain and depends on factors such as moderating wage growth and stabilising input costs.
Even modest inflation can have practical consequences for businesses, such as unintentionally breaching the VAT registration threshold.
Inflation and VAT registration
VAT registration is based on turnover, not profit or real growth. As inflation pushes prices higher, turnover can increase even when sales volumes stay the same, meaning a business can cross the VAT registration threshold without expanding.
During periods of higher inflation, turnover can rise quickly and unexpectedly, making it easy to miss the registration point. Understanding when VAT registration is required, and monitoring turnover carefully, is essential to avoid unexpected VAT liabilities, penalties and interest.
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 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 that is not exempt from VAT or “outside of scope” goods or services.
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 2026 (as your VATable supplies for the period 1 July 2025 to 30 June 2026 exceeds £90,000):
- You will need to notify HMRC by 30 July 2026 and;
- Will be VAT registered on 1 August 2026.
Penalties and exceptions for late VAT registration
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 get in touch with your usual M+A Partners’ contact or with the team at north.norfolk@mapartners.co.uk, or call 01263 513971.
