VAT Threshold Changes for 2025–2026: A Clear Guide for UK Small Businesses

For UK small business owners, few financial topics cause as much concern as VAT registration. With the 2025/26 tax year approaching, understanding the latest VAT threshold rules is crucial for staying compliant and making informed decisions for your business.

This guide breaks down everything you need to know about the VAT registration threshold for the upcoming year, how to navigate the rules, and the practical steps to take if your turnover is on the rise.

The VAT Threshold for 2025–2026: What’s Changed?

In the Spring Budget 2024, the government announced a significant change that will affect many growing businesses. After being frozen at £85,000 since 2017, the VAT registration threshold is finally increasing.

For the tax year beginning 1 April 2025, the VAT registration threshold will rise from £85,000 to £90,000.

Similarly, the VAT deregistration threshold—the point at which you can apply to leave the VAT scheme if your turnover falls—will increase from £83,000 to £88,000.

Why This Change Matters for Your Business

This change provides a welcome £5,000 of breathing room for small businesses on the cusp of registration. It means you can earn more revenue before facing the administrative and financial considerations of becoming VAT-registered. For an estimated 28,000 businesses, this update will mean they can continue trading without registering for VAT in the coming year.

Key Rules: How HMRC Measures Your Turnover

Understanding the threshold is one thing; knowing how HMRC applies it is another. This is where many businesses get caught out. Your taxable turnover includes almost all sales of goods and services that are not VAT-exempt. Crucially, HMRC doesn’t look at your profit—only your sales.

The most important rule to remember is the "rolling 12-month" period. HMRC does not only check your turnover at your year-end. Instead, they assess it at the end of every single month, looking back at your total taxable turnover for the previous 12 months.

The "Forward Look" Rule

You must also register if you have a reasonable expectation that your turnover will exceed the threshold in the next 30 days alone. This often applies if you land one large contract that will put you over the limit.

Step-by-Step: What to Do If You Need to Register

If you hit the threshold, you must act. The process is straightforward but time-sensitive.

• Identify the Date: Your effective date of registration is the first day of the second month after you exceeded the threshold. If your rolling turnover went over £90,000 on 30 May 2025, your registration date would be 1 July 2025.

• Submit Your Application: You must complete and submit your application to HMRC within 30 days of realizing you need to register. The easiest way is online through the GOV.UK website.

• Start Charging VAT: From your effective registration date, you must begin charging VAT at the standard rate (20%) on your taxable sales to other businesses and consumers. You must also start keeping VAT records and filing quarterly VAT returns.

• Consider Your Scheme: You may benefit from a special scheme like the Flat Rate Scheme (simplified percentage of turnover) or Annual Accounting Scheme (one annual return), which can ease the administrative burden.

To Register or Not? The Pros and Cons for Small Businesses

Reaching the VAT threshold is often a sign of success, but registration brings both advantages and challenges.

Potential Benefits:

Recover Input VAT: You can reclaim the VAT you pay on business purchases (from equipment to raw materials), which can improve cash flow.

Business Perception: Being VAT-registered can make your business appear larger and more established to potential clients, especially other VAT-registered businesses.

Planning Ahead for 2025–2026: Your Action Plan

Monitor Closely: If your turnover is between £70,000 and £90,000, start monitoring your rolling 12-month total at the end of each month. A simple spreadsheet can track this and prevent any surprises.

Understand Your Costs: Analyse which of your suppliers are VAT-registered. The VAT you could reclaim on these costs can offset the impact of registration.

Seek Advice Early: The rules around what counts as taxable turnover, exemptions, and which VAT scheme is right for you can be complex. Getting advice before you hit the threshold gives you time to plan strategically.

Don't let VAT hold you back

Talk to a VAT expert. Grow your business