What is the VAT registration threshold in the UK for 2026/27?

The VAT registration threshold is £90,000 in taxable turnover over any rolling 12-month period, as of April 2024. If your VAT-taxable sales reach £90,000 in any 12-month period, you must register for VAT within 30 days and begin charging VAT on your supplies. You can also register voluntarily below this threshold — useful if your suppliers are VAT-registered and you want to reclaim input VAT.

What are the three main UK VAT rates?

Standard rate: 20% — applies to most goods and services. Reduced rate: 5% — applies to domestic energy (gas, electricity), children's car seats, home energy efficiency installations, and some other goods. Zero rate: 0% — applies to most food, children's clothing and shoes, books and newspapers, prescription medicines, and certain other essential goods. Zero-rated goods are still VAT-taxable (you report them on your VAT return) but at a 0% rate — distinct from exempt supplies.

What is the VAT Flat Rate Scheme?

The VAT Flat Rate Scheme (FRS) simplifies VAT for small businesses. Instead of tracking individual purchases and sales for input/output VAT, you pay HMRC a fixed percentage of your gross turnover — the percentage varies by industry (e.g., 14.5% for IT contractors, 7.5% for retailers, 12% for management consultants). You still charge customers at 20% and keep the difference between what you charge and the flat rate you pay HMRC. Available if annual taxable turnover is £150,000 or below (excluding VAT).

What is Making Tax Digital (MTD) for VAT?

All VAT-registered businesses must use MTD-compatible software to keep digital records and submit VAT returns. You cannot file VAT returns manually through HMRC's portal. Approved software includes QuickBooks, Xero, Sage, FreeAgent, and many others. Under MTD for VAT, your accounting software submits VAT return data directly to HMRC's systems. Penalties apply for using non-compatible software or maintaining non-digital records.

VAT Guide UK 2026/27 — Registration Threshold, Rates, Schemes & Returns

Value Added Tax (VAT) is a consumption tax charged by UK businesses on most goods and services. Once your taxable turnover exceeds £90,000 in any rolling 12-month period (the 2026/27 threshold), you must register for VAT, charge it to customers, and file quarterly VAT returns to HMRC. For small businesses, VAT adds administrative overhead — but choosing the right VAT scheme can reduce that burden and even boost your margins.

Quick answer: Register for VAT when taxable sales exceed £90,000 in 12 months. Charge 20% standard rate on most sales. Reclaim VAT on business purchases. File quarterly VAT returns digitally using MTD-compatible software. Small businesses earning under £150,000/year may benefit from the Flat Rate Scheme.

UK VAT Rates 2026/27

Rate	Percentage	Examples
Standard rate	20%	Most goods and services — electronics, clothes (adults), software, professional services, hospitality
Reduced rate	5%	Domestic gas and electricity, children’s car seats, renovation of empty homes, sanitary products
Zero rate	0%	Most food, children’s clothing, books and newspapers, prescription medicines, public transport fares
Exempt	N/A	Financial services, insurance, education, healthcare — no VAT charged, cannot reclaim input VAT

Key distinction: Zero-rated supplies are taxable at 0% — you report them on your VAT return and can reclaim input VAT on related costs. Exempt supplies are not taxable — you cannot charge VAT or reclaim input VAT on exempt activities.

VAT Registration

Mandatory Registration

You must register if:

Your taxable turnover exceeds £90,000 in any 12-month rolling period, OR
You believe it will exceed £90,000 in the next 30 days

Action required: Register within 30 days of becoming liable. HMRC’s online registration at gov.uk/register-for-vat issues your VAT number, usually within 10 working days. You must charge VAT from the date you were required to register — not from when you receive your certificate.

Voluntary Registration

You can register voluntarily below the £90,000 threshold. This is useful when:

Your customers are mostly businesses (B2B) who can reclaim VAT anyway
You make significant purchases from VAT-registered suppliers and want to reclaim input VAT
You want to appear larger to business clients

Voluntary registration also requires filing quarterly returns and charging VAT — assess whether the admin and cash flow impact is worth it.

Deregistration

If your taxable turnover falls below £88,000 (the deregistration threshold), you can apply to deregister. On deregistration, you may owe VAT on business assets (a deemed supply).

How VAT Works: Input and Output VAT

Output VAT: VAT you charge your customers on sales (you collect this on behalf of HMRC)
Input VAT: VAT you pay to suppliers on business purchases (you reclaim this from HMRC)
VAT payable to HMRC: Output VAT − Input VAT = Net VAT owed (or reclaimed if negative)

Example:

A web design agency with £30,000 quarterly sales:

Output VAT collected: £30,000 × 20% = £6,000
Input VAT on software/equipment: £2,000
VAT payable to HMRC: £6,000 − £2,000 = £4,000

VAT Schemes for Small Businesses

1. Standard VAT Accounting (Default)

File quarterly returns based on invoices issued (accruals basis). Default method for all registered businesses.

2. Cash Accounting Scheme

Pay and reclaim VAT based on when cash changes hands — not when invoices are raised. Available if: annual turnover ≤ £1.35 million. Benefit: delays VAT payment until you receive payment from customers — excellent for businesses with slow-paying clients.

3. Annual Accounting Scheme

Make 9 monthly or 3 quarterly instalments based on the previous year’s VAT. File just one return per year. Available if: annual turnover ≤ £1.35 million. Benefit: reduces admin to one annual return; instalments smooth cash flow.

4. Flat Rate Scheme (FRS)

Pay a fixed percentage of your gross (VAT-inclusive) turnover to HMRC, instead of calculating input/output VAT separately. Available if: annual taxable turnover ≤ £150,000 (excluding VAT).

Business Type	Flat Rate %
Architect	14.5%
IT contractor/computer consultant	14.5%
Management consultant	14%
Retail	7.5%
Catering	12.5%
Accountancy or bookkeeping	14.5%
Hairdressing	13%
Legal services	14.5%

How FRS works: You charge 20% VAT on sales as normal. You pay HMRC the flat rate % of your gross turnover. The difference is yours to keep — effectively a profit on the VAT differential.

Example: An IT contractor earns £10,000 + £2,000 VAT = £12,000 gross revenue per month. FRS payment to HMRC: £12,000 × 14.5% = £1,740. You charged £2,000 VAT but only pay £1,740 — keeping £260/month.

First-year discount: 1% off your flat rate percentage in your first year of VAT registration.

Limited cost trader: If your VAT-inclusive purchases of goods are below 2% of VAT-inclusive turnover (or less than £250 per quarter), HMRC classes you as a limited cost trader and your flat rate is fixed at 16.5% regardless of business type.

VAT Returns

VAT returns are due 1 month and 7 days after the end of each VAT accounting period (usually quarterly). If your VAT period ends March 31, your return and payment are due by May 7.

Filing: All VAT returns must be filed digitally via Making Tax Digital (MTD) compatible software. You cannot use HMRC’s old VAT portal.

Payment: Pay via Direct Debit, online banking (Faster Payments, CHAPS, BACS), or card. Allow 3 working days for bank transfers to clear.

Making Tax Digital (MTD) for VAT

All VAT-registered businesses must:

Keep digital VAT records in MTD-compatible software
Submit VAT returns directly through that software’s link to HMRC’s API
Not copy figures from non-digital records into software (called “digital links” rule)

Approved MTD software: QuickBooks, Xero, Sage, FreeAgent, Kashflow, VT Software, and others.

Capital Allowances Guide — deduct business equipment costs
Employment Allowance 2026 — £5,000 reduction in employer NICs
Self-Employed Tax Guide — income tax and NI for sole traders
HMRC Mileage Rates 2026 — approved mileage rates for business travel
UK Taxes Hub — all UK tax guides for 2026

Once you are VAT-registered, the administrative burden is manageable with the right software — and the ability to reclaim input VAT on business purchases often offsets the compliance cost. Choose your VAT scheme carefully in the first year, as changes can take effect at the start of the next VAT period.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy