The basic requirement is that if your business income goes over £90,000 on a rolling 12 month basis (2025-26), then VAT registration is necessary.
Some things to be aware of
- This a rolling test, not financial year, calendar year or tax year
- VAT works on an entity basis, so if you are a sole trader with 2 or 3 separate businesses they are aggregated together – in some cases this can often be sidestepped by incorporation or bringing a family member in as a partner, so long as that is a genuine move and not motivated by tax saving. See VAT Mitigation
- See case study 1 below on how the rolling test works
Voluntary VAT Registration – Sometimes we’ve been asked by Yoga Teachers about registering voluntarily for VAT – you can do this where your turnover is below the threshold. The temptation arises to get VAT back on expenses, eg hiring a venue for a workshop, or studio rent. However it means you have to charge VAT on all your income which outweighs the saving; unless you put your prices up and risk losing business. See case studies 2 and 3 below.
Be aware of the “cliff edge” effect of VAT, in other words if your turnover is £89,999 no vat is due, if its £90,001 then you pay VAT on everything.
When you register you can make a one off claim for VAT incurred up to:
- Three years ago on goods which you still use in your business, eg IT or props
- Six months ago on services which your business still benefits from, eg web design
- No claim can be made for items which have been “consumed”, eg telephone costs or cleaning materials
The case studies below show the following examples:
- VAT Registration – this shows how the VAT Registration Threshold applies.
- Voluntary VAT registration (1) – how it is detrimental
- Voluntary VAT registration (2) – how it is detrimental
- VAT cliff edge – how it effects businesses adversely
View the case studies in a new window