VAT in 2026: How the £90,000 Threshold Really Works, MTD, and Choosing the Right Scheme

VAT is where good businesses get caught - not because the tax is complicated, but because the registration rules don't work the way most people assume. Here's what every growing business needs to know in 2026.

The threshold is a rolling 12 months - not your accounting year

You must register for VAT once your VAT-taxable turnover passes £90,000 in any rolling 12-month period. That's the rule that catches people: it isn't "£90,000 in my accounting year" or "in the tax year". At the end of every month, you should look back at the last 12 months' takings. A strong Christmas plus a good spring can tip you over without any single year looking unusual.

Two timing rules follow:

·      The look-back test: if the last 12 months exceed £90,000, you must register within 30 days of the end of that month.

·      The look-forward test: if you expect to exceed £90,000 in the next 30 days alone (a single big contract can do it), you must register immediately.

Register late and HMRC can charge the VAT you should have collected - out of your own pocket. If you're anywhere near the threshold, this is exactly the moment to have an accountant watching your rolling total. Good bookkeeping makes the check automatic. Bookkeeping service page

(Going the other way? You can apply to deregister if your taxable turnover falls below £88,000.)

Making Tax Digital: no way around it

Every VAT-registered business - regardless of size - must keep digital records and file returns through MTD-compatible software. Typing figures into the old HMRC portal is no longer an option. In practice this is a solved problem: we file our clients' VAT returns directly from QuickBooks (or Xero, FreeAgent or Sage if that's what you already use), so the quarterly return becomes a non-event. VAT Returns service

Voluntary registration: sometimes a smart move

Below £90,000 you can still register by choice, and for some businesses it pays:

·      Sell mainly to VAT-registered businesses? They reclaim the VAT you charge, so your prices don't really rise - and you get to reclaim VAT on your own costs, software, equipment and fuel.

·      Sell mainly to the public? Registering usually makes you 20% more expensive overnight. Most consumer businesses should wait.

Which VAT scheme?

The default is standard quarterly VAT accounting, but HMRC offers schemes that can simplify life or help cashflow:

·      Flat Rate Scheme - you pay HMRC a fixed percentage of turnover instead of tracking VAT on every purchase; simpler admin, best for service businesses with few costs (though "limited cost" rules reduce the benefit for some).

·      Cash Accounting - you pay VAT when customers actually pay you, not when you invoice; a genuine cashflow saver if customers pay slowly.

·      Annual Accounting - one return a year with instalments, instead of four returns.

The right scheme depends on your margins, your customers and your cashflow - it's a ten-minute conversation with us, and choosing well can be worth thousands. While you think it over, our free tax calculators give instant 2026/27 estimates for the rest of your tax picture.

Frequently asked questions

What is the VAT registration threshold in 2026? £90,000 of VAT-taxable turnover in any rolling 12-month period - not your accounting year or the tax year. You must check the last 12 months on a rolling basis. The deregistration threshold is £88,000.

How quickly must I register once I cross the threshold? Within 30 days of the end of the month in which your rolling 12-month turnover exceeded £90,000. You must also register immediately if you expect your turnover to exceed £90,000 in the next 30 days alone.

Does Making Tax Digital apply to VAT? Yes - every VAT-registered business must keep digital records and file VAT returns through Making Tax Digital compatible software. Manual typing into the old HMRC portal is no longer an option.

Is registering for VAT voluntarily ever worth it? Often, yes. If your customers are mainly VAT-registered businesses, registering lets you reclaim VAT on your own costs without making you more expensive to your customers. If you sell mainly to the public, it usually makes you 20% dearer - so the answer depends on who you sell to.

Our VAT returns service handles registration, filing and reverse-charge rules.

See how we set businesses up for making tax digital.

Good digital records start with good bookkeeping.