What is the VAT threshold?

When running a business, there’s one number you don’t want to lose sight of – the VAT threshold. It’s the point where HMRC expects you to register for VAT, and if you cross it without realising, you could face penalties. 

Understanding where that line sits and what happens when you cross it is essential for staying compliant, planning ahead, and avoiding any surprises from HMRC. Whether you're self-employed or running a growing enterprise, here's what you need to know.

In this guide, we’ll cover:

• What is the VAT threshold?
• What is the UK VAT threshold?
• VAT registration: What it means for your business
• What is the downside of being VAT-registered?
• VAT thresholds and accounting schemes
• VAT deregistration threshold
• How do I avoid hitting the VAT threshold?
• Sole trader or limited company: What’s better for VAT?
• Risks and challenges of going VAT-registered
• What is the 4-year rule for VAT?
• What is the 20-year rule for VAT?
• What happens if I go over the VAT threshold without realising?
• How Dojo can help
• FAQs

What is the VAT threshold?

The VAT threshold is the annual turnover limit that determines when a business will need to register for VAT. Once the annual turnover goes over the set limit, charging VAT and submitting regular returns becomes a legal requirement.

What is the UK VAT threshold?

The UK VAT threshold 2025 is currently set at £90,000, and it’s stayed the same for several years. If your taxable turnover exceeds this amount in any 12-month rolling period (not just by tax year), you will have to register for VAT with HMRC and be provided with a VAT number.

Taxable turnover includes most sales of goods and services – even if you’re not charging VAT yet. This doesn’t include exempt sales or non-business income, but it’s always worth double-checking what counts and what doesn’t. If your turnover is approaching the VAT threshold UK, check out our step-by-step VAT registration guide.

VAT registration: What it means for your business

Crossing the VAT registered threshold isn’t just a paperwork change – it changes how your business works day-to-day.

Once you’ve successfully registered for VAT, you’ll need to:

• charge VAT (usually 20%) on most goods and services
• submit regular VAT returns to HMRC
• keep detailed VAT records
• pay any VAT owed.

For some businesses, registering voluntarily before hitting the limit can help, like being able to reclaim VAT on small business expenses. But it also introduces extra admin and responsibilities – it’s a good idea to speak to an accountant to see if this is the right step for your business.

What is the downside of being VAT-registered?

• More admin: Regular VAT returns and detailed record-keeping become a legal requirement.
• Cash flow pressure: You may need to pay VAT before you’ve been paid by your customers.
• Pricing challenges: If your customers can’t reclaim VAT, you’ll either need to raise your prices or take the hit yourself.
• Penalty risk: Mistakes or delays can lead to fines from HMRC.

VAT thresholds and accounting schemes

Beyond the main VAT registration threshold, there are alternative VAT accounting schemes offered by HMRC, designed to simplify the way businesses handle VAT once they’re registered. 

While these schemes don’t affect the VAT registration threshold itself, they offer different ways to calculate, report, and pay VAT – which can be especially helpful for small businesses managing tight cash flow or limited admin resources. Each scheme comes with its own turnover-based eligibility criteria, so you’ll need to meet specific limits to join or remain on them. The table below gives a quick overview of where those limits sit.

These schemes can be especially useful for sole traders juggling VAT with everyday operational and self-employed expenses, and they can help businesses stay on top of things as they approach the VAT reg threshold without going over it prematurely.

VAT deregistration threshold

If your turnover drops below £83,000, you can apply to deregister from VAT. 

Businesses sometimes choose to deregister to reduce admin, especially if they’re no longer benefiting from reclaiming VAT or if their customers aren’t VAT-registered. It can also make pricing more straightforward if you’re mainly selling to individuals or smaller clients who can’t claim VAT back.

Just keep in mind that deregistering means you’ll need to stop charging VAT – and you may need to account for VAT on any stock or assets still on hand.

How do I avoid hitting the VAT threshold?

• Forecast your turnover monthly to avoid unexpected registration triggers.
• Invest in accounting software to track VAT eligibility in real-time.
• Build VAT into your pricing strategy early – even if you’re not registered yet.
• Factor in the cost of registration in terms of admin, tools, and time.

It’s important to note that staying just under the VAT limit isn’t always worth the stress.  Constantly monitoring turnover, limiting sales, or turning down new opportunities to avoid registering can hold a business back. In some cases, the effort to stay below the line can outweigh the actual cost or complexity of being above the VAT registration threshold.

Sole trader or limited company: What’s better for VAT?

There’s no one-size-fits-all answer, but limited companies tend to find it easier to manage VAT efficiently thanks to greater separation of personal and business finances. Still, many sole traders handle VAT successfully, especially with the help of digital tools and tax advisors.

If you’re not sure which setup is right for you, our guide to registering as self-employed can help you weigh the pros and cons.

Risks and challenges of going VAT-registered

• Increased admin: You'll need to file returns quarterly (or annually, if on the right scheme)
• Cash flow dips: Especially if you have long payment terms or deal with VAT-exempt customers
• Complex rules: Things like the four-year rule for VAT (to reclaim past input VAT) or penalties if you register late can catch new businesses off guard

What is the 4-year rule for VAT?

If you register for VAT later than you should have, HMRC still lets you claim back some of the VAT you paid before registering. For goods you still own and use in the business, you can go back up to 4 years – as long as you have proper records. For services, the limit is 6 months. It’s a useful rule for businesses that have invested heavily before hitting the threshold.

What is the 20-year rule for VAT?

If HMRC believes your business should’ve been VAT-registered earlier, they can review your records going back up to 20 years. If they find that you exceeded the threshold and didn’t register, they can charge backdated VAT along with possible penalties. It’s one of the reasons why tracking turnover and registering on time matters.

What happens if I go over the VAT threshold without realising?

If you do go over the VAT registration threshold without meaning to, you’ve got 30 days from the end of the month in which you exceeded the limit to register. Miss that deadline, and you could be on the hook for late registration penalties – including backdated VAT on past sales.

To stay on top of it:

• Monitor your rolling 12-month turnover each month – not just by tax year.
• Act quickly if you notice you’ve gone over, even by a small amount.
• Speak to an accountant if you’re unsure whether your sales count towards the threshold.
• Keep your records in order, so you’re prepared to register and submit VAT returns without delay.