UK VAT: when to register, the flat rate trap and invoices

You must register for VAT in the UK when your taxable turnover for the last 12 months goes over £90,000, or when you expect it to go over £90,000 in the next 30 days alone. Below that, it's your choice.

The sums are the easy part, and our free VAT Calculator does them in one step. Small businesses get caught out by the rules around them: registering late, joining the Flat Rate Scheme when it costs more and sending incomplete invoices.

Facts checked on 26 September 2026 against GOV.UK and HMRC guidance.

When you must register for VAT

There are two tests. Meet either and you must register.

For the first test, look back. At the end of every month, add up your taxable turnover for the previous 12 months, whatever your tax year.

Say your total first goes over £90,000 in March. You then have until 30 April to apply, and your registration starts on 1 May.

For the second, look ahead. Win a £95,000 contract that you'll finish and bill within 30 days and you're over the line straight away, with your registration starting on the day you realised.

Taxable turnover is everything you sell that isn't exempt from VAT or outside its scope. Zero-rated sales count. Exempt sales, such as insurance, don't, and nor does selling off a van or equipment you used in the business.

Register late and you owe VAT on your sales since the date you should have registered, plus any penalty HMRC charges. If customers won't pay the extra, you pay it.

If a one-off order takes your last 12 months over £90,000, you can ask HMRC for an exception. You'll need to show that your taxable turnover for the next 12 months will not go over £88,000. There's no exception under the 30-day test. GOV.UK's Register for VAT guide explains how to apply.

Should you register for VAT before you have to?

You can register at any turnover below £90,000. Whether it pays depends on who buys from you.

It usually pays when:

• most of your customers are VAT-registered businesses, who claim back the VAT you add

• you buy a lot of stock, equipment or materials with VAT on them

• you've had big set-up costs, because you can reclaim VAT on goods you still have from the 4 years before you register, and on services from the 6 months before

GOV.UK sets out those limits in Reclaim VAT on business expenses.

Selling to the public is different. People can't reclaim VAT, so you either raise your prices by a fifth or pay the VAT out of your margin. You also take on a VAT Return, usually every 3 months, and keep some records digitally under HMRC's Making Tax Digital rules.

Our rule of thumb: if most of your sales go to VAT-registered businesses, register early. If most go to the public, wait until you have to.

How the VAT Flat Rate Scheme works

On the Flat Rate Scheme you still charge customers the normal VAT rate, usually 20%, but you pay HMRC a fixed percentage of your turnover including VAT, set by your type of business, and keep the rest. The catch is that you can't reclaim VAT on what you buy, apart from certain capital assets over £2,000.

You can join if you expect taxable turnover of £150,000 or less, before VAT, in the next 12 months. You must leave if, on the anniversary of joining, your turnover including VAT for the last 12 months was over £230,000, or you expect it to be over £230,000 in the next 12 months. You must also leave if you expect your total income in the next 30 days alone to be over £230,000 including VAT. For your first year of VAT registration, take 1% off.

A few rates from GOV.UK's flat rate list:

Take a hair salon with sales of £25,000 a quarter plus £5,000 VAT, so £30,000 in all. It buys £4,000 of hair products plus £800 VAT, and nothing else with VAT on it.

• Standard VAT: £5,000 charged minus £800 reclaimed, so £4,200 to HMRC

• Flat rate at 13%: 13% of £30,000, so £3,900 to HMRC

The salon saves £300 a quarter and keeps simpler records.

The limited cost trap

HMRC calls you a limited cost business, or limited cost trader, if what you spend on goods is less than 2% of your turnover, counting VAT on both. The same applies if you spend more than 2% but under £1,000 a year, which is £250 a quarter. Your rate is then 16.5%, whatever your trade.

Only goods used for nothing but the business count. Rent, accountancy fees, advertising, downloaded software, a laptop or phone, car fuel and food for you or your staff are all left out. Fuel does count if you run a taxi, courier or other transport business in your own or a leased vehicle.

With so much left out, freelancers who sell their time often end up on 16.5%. The salon is safe: its £4,800 of hair products is far over 2% of £30,000.

At 16.5% the sums barely work. Bill £20,000 in a quarter plus £4,000 VAT and you pay HMRC 16.5% of £24,000, which is £3,960. You keep £40. On standard VAT you'd pay £4,000 minus the VAT on your costs, so once those costs carry more than £40 of VAT a quarter, the flat rate costs you more.

Run HMRC's flat rate checker before you join. If your spending on goods sits near the 2% line, VAT Notice 733 says you may need to repeat the test every VAT Return.

What a VAT invoice must show

Once registered, you must give VAT-registered customers a VAT invoice for standard-rated or reduced-rated sales, normally within 30 days. HMRC's VAT Notice 700/21 lists what it must show:

• a unique invoice number that follows on from the one before

• the time of supply, also called the tax point

• the date of issue, if different from the time of supply

• your name, address and VAT registration number

• your customer's name and address

• a description of the goods or services

• for each line, the quantity, the VAT rate and the amount before VAT

• the total before VAT

• the rate of any cash discount you offer

• the total VAT, in pounds sterling

• the unit price

A sale of £250 or less including VAT can go on a simplified invoice. That needs your name, address and VAT number, the time of supply, a description, and for each VAT rate the total including VAT and the rate charged. Exempt sales can't go on one.

Until HMRC sends your VAT number you can't show VAT on an invoice, but you can raise your prices to cover it and reissue those invoices with VAT once the number arrives.

Keep a copy of every invoice you issue, even ones you cancel, for at least 6 years. If a customer pays cash against a VAT invoice and asks for a receipt, you must give them a dated receipt for the amount.

Our free Invoice Generator adds a tax line at the rate you set, in pounds if you pick GBP (£). It has no VAT number box, so type yours under your address, then check the result against HMRC's list.

For cash sales, the Receipt Generator makes a dated receipt to download and print, and our invoice guide for UK freelancers covers payment terms and clients who don't pay.

Let the VAT calculator do the sums

This guide leaves out the arithmetic on purpose. Type an amount into the ToolsForTasks VAT Calculator and it adds or removes VAT at 20%, 5% or any other rate, showing the price before VAT, the VAT and the total.

Price your work on figures before VAT, because the VAT you charge is collected for HMRC. The Profit Margin Calculator then shows your margin and markup.

Common questions about UK VAT

Is the £90,000 VAT threshold based on the tax year?

No. It's a rolling 12 months, checked at the end of every month.

Can I cancel my VAT registration if my sales drop?

Yes, once your taxable turnover falls below £88,000. You stop charging VAT from the cancellation date HMRC gives you.

Do I charge customers the flat rate?

No. Your invoices show VAT at the normal rate, usually 20%. The flat rate only sets what you pay HMRC.

For more free business tools, see our guide to free online tools for small businesses or browse all ToolsForTasks tools.