The VAT registration threshold

GOV.UK sets out two separate tests, and passing either one means you must register.

The backward look asks whether your total taxable turnover for the last 12 months has gone over £90,000. This is any 12 months ending with the current month, not your accounting year or the tax year, so a business needs to add up the latest 12 months at each month end. If you go over, you have 30 days after the end of that month to register.

The forward look asks whether you expect taxable turnover to go over £90,000 in the next 30 days alone. This catches a single large contract or a sudden jump in sales. You must register by the end of that 30 day period.

The date you start charging VAT is your effective date of registration, and it works differently for each test.

Under the backward look, GOV.UK says your effective date is the first day of the second month after you go over the threshold. Its example is a business whose taxable turnover for the last 12 months reaches £100,000 on 15 July, the first time it has gone over. It must register by 30 August, and its effective date is 1 September.

Under the forward look, the effective date is the date you realised you would go over. GOV.UK's example is a business that arranges a £100,000 contract on 1 May, to be paid at the end of May. It must apply by 30 May, and its effective date is 1 May.

Taxable turnover is the total value of everything you sell that is not exempt from VAT or outside its scope. According to GOV.UK it includes:

• standard-rated, reduced-rated and zero-rated goods and services
• goods you hired or loaned to customers
• business goods used for personal reasons
• goods you bartered, part-exchanged or gave as gifts
• services from businesses abroad that you had to reverse charge, and supplies under the domestic reverse charge

The zero-rated point catches people out. A business selling mostly zero-rated goods, such as most food, still counts those sales towards the threshold even though no VAT would be charged on them. GOV.UK says a business whose taxable sales are mostly zero-rated may be able to ask HMRC for an exemption from registration. Exempt sales are a different category and are left out of the count. Our guide to how to register for VAT picks up once you know you are over.

If your taxable turnover goes over the threshold temporarily, you can apply for a registration exception. HMRC will consider it and write to confirm whether you get one, and if it does not grant an exception, it will register you. This tends to matter for seasonal businesses with one unusually strong year, but it is HMRC's decision, so apply promptly rather than simply hoping turnover will fall back.

Some other rules can bring a business in regardless of turnover. A business based outside the UK that supplies goods or services to the UK must register whatever its turnover, and if you take over a VAT-registered business, the turnover of the business you take over counts alongside your own.

GOV.UK says you can choose to register if your turnover is less than £90,000. Businesses that sell mainly to other VAT-registered businesses sometimes do this, because their customers can reclaim the VAT and the business can reclaim VAT on its own costs. The trade-off is that you then charge VAT, keep digital records and file returns through Making Tax Digital for VAT. Businesses selling mainly to the public usually think harder about it, since VAT added to prices is a real cost to those customers. The VAT flat rate scheme guide covers one way smaller registered businesses simplify things.

If you register late, GOV.UK says you must pay VAT on any sales made since the date you should have registered, and you may have to pay a penalty depending on how much you owe and how late you were. Because you may not have charged your customers VAT over that period, the money often has to come out of your own margin, which is why it pays to watch the rolling total.

This guide is general information rather than tax advice. If you are close to the threshold, the VAT returns service page explains how accountants help with registration and returns, and we read every enquiry and, where we can, will put you in touch with a local accountant. See how it works.