There is no annual turnover test
Almost every free VAT threshold calculator asks for one number, your annual turnover, and compares it with £90,000. That test does not exist anywhere in the legislation.
VATA 1994 Schedule 1 paragraph 1(1)(a) makes a person liable to be registered "at the end of any month" if the value of taxable supplies "in the period of one year then ending" has exceeded £90,000.
At the end of any month, looking back over the year then ending. That is a rolling window, re-tested twelve times a year, and none of those twelve dates is your accounting year end. Schedule 1 does not mention a tax year anywhere.
Which is why finding out at your year end is so expensive
Liability is automatic. HMRC does not have to do anything and you do not have to notice. You became liable at a month end by operation of the statute.
So a business with a 31 March year end that first sees the £90,000 figure in its April accounts may have crossed the previous summer. It has missed the notification deadline by months, has been VAT registered throughout without knowing, and now owes output VAT on every sale since the effective date. Because it did not charge VAT on those invoices, that comes straight out of its own margin, with a penalty attached.
On a business turning over £8,000 a month, seven months of unnoticed registration is roughly £11,000 of VAT payable on sales that were never priced to carry it.
Three dates, and they are not the same date
- You cross at a month end.
- You must notify HMRC within 30 days of that month end.
- Registration takes effect from the first day of the second month after the one you crossed in.
Cross on 31 August, notify by 30 September, registered from 1 October. Those get collapsed into a single vague "when I hit ninety grand" in most people's heads, and the gap between them is where the penalties live.
The forward look, which has no grace period at all
There is a second, completely separate test, and it is not applied at month ends. At any moment, ask whether your taxable supplies in the next 30 days alone will exceed £90,000. The 30 days on their own, not annualised.
If they will, you are liable immediately, you must notify before the end of that 30 day period, and registration is backdated to the start of it rather than beginning later. There is no first-day-of-the-second-month cushion here.
The trigger is "reasonable grounds for believing", which means it runs from your state of knowledge. Signing the contract or accepting the order is what starts it, not the money arriving. A single large order can make you VAT registered from today.
Zero-rated sales count
Taxable turnover means everything that is not exempt or outside the scope. Zero-rated and reduced-rated sales are included, even though no VAT is charged on them.
So a zero-rated business, selling most food or children's clothing for instance, can be pushed over £90,000 by sales that will never produce a penny of output VAT. It still has to register, still has to file, and gets the compliance burden without the revenue. Unwelcome, and entirely correct.
The two escape routes, and they use different numbers
Exception from registration covers the one-off spike. If you crossed on the backward look but can show the next twelve months will stay under £88,000, you can apply not to be registered. Note the figure: it tests against the deregistration threshold, not the £90,000 you actually crossed. You have to apply and HMRC has to agree.
Deregistration is the ordinary route out, at the same £88,000, and it runs in the opposite direction to registration. Registration looks back over the year ending. Deregistration looks forward over the year beginning. Getting those two the wrong way round is the second most common mistake in this area, after assuming the test is annual at all.
Common questions
Is the VAT threshold tested against my annual turnover?
No. It is one of the most expensive misunderstandings in this area. VATA 1994 Schedule 1 says you become liable "at the end of any month" if taxable supplies "in the period of one year then ending" have exceeded £90,000. It is a rolling twelve month window re-tested at the end of every month, so there are twelve trigger dates a year and not one of them is your accounting year end. Schedule 1 never mentions a tax year at all.
What happens if I only notice at my year end?
You are already registered and already late. Liability arises automatically at the month end you crossed, without HMRC doing anything and without you noticing. A business with a 31 March year end that first sees the figure in its April accounts can easily have crossed the previous summer. You then owe output VAT on every sale since the effective date, and because you did not charge VAT on those invoices it comes out of your own margin, with a penalty on top.
When exactly am I registered from?
Three separate dates that get collapsed into one. You cross at a month end. You must notify HMRC within 30 days of that month end. Registration takes effect from the first day of the second month after the one you crossed in. Cross on 31 August, notify by 30 September, and you are VAT registered from 1 October.
What is the forward look test?
A completely separate test, applied at any time rather than only at a month end: will your taxable supplies in the next 30 days alone exceed £90,000? The 30 days on their own, not annualised. It has no grace period, registration is backdated to the start of that 30 day period, and the trigger is "reasonable grounds for believing", so it runs from the moment you sign the contract rather than from when the money lands. One large order can make you VAT registered from today.
Do zero-rated sales count towards the threshold?
Yes, and this catches people out badly. Taxable turnover means everything that is not exempt or outside the scope, so zero-rated and reduced-rated sales are included even though no VAT is charged on them. A zero-rated business, food or children’s clothing for instance, can be pushed over £90,000 by sales that will never produce a penny of output VAT.
I had one big month. Do I have to register?
Possibly not. There is an exception from registration for exactly this: if you crossed on the backward look but can show taxable supplies for the next twelve months will stay under the deregistration threshold of £88,000, you can apply not to be registered. Note that it tests against £88,000 and not the £90,000 you crossed, which is a different figure doing a different job. You have to apply and HMRC has to agree, so it is a request rather than something to assume.
When can I deregister?
When HMRC is satisfied that taxable supplies in the year beginning will not exceed £88,000. Note the direction of travel, because it is the opposite of registration: the registration test looks back over the year ending, and the deregistration test looks forward over the year beginning.
Does the threshold apply if my business is not based in the UK?
No. A non-established taxable person has no threshold at all and must register from the first taxable supply, whatever its value. There is no £90,000 to stay under and no grace period. This regularly surprises overseas sellers who assume the UK threshold applies to them.