UK VAT Registration Threshold

The rolling 12-month test

The backward test is run once a month, at each month end, on the 12 months just finished. VAT Notice 700/1 says you are liable to register if “at the end of any month, the value of your taxable supplies in the previous 12 months or less is over the registration threshold.” The supplement to the notice gives the current threshold for taxable supplies as £90,000, and lists it as having applied from 1 April 2024, when it rose from £85,000.

Two details trip people up. The window rolls: at the end of March you look at April to March, at the end of April you look at May to April. A quiet first half of the financial year does not reset anything. And the threshold is crossed when turnover goes over £90,000, not when it reaches it.

The deadline and the effective date both run from the end of the month. GOV.UK says you have to register “within 30 days of the end of the month when you went over the threshold,” and that your effective date of registration “is the first day of the second month after you go over the threshold.” Its example: on 15 July your 12-month taxable turnover is £100,000 for the first time, so you must register by 30 August and your effective date is 1 September. Notice 700/1 works the same arithmetic from a month end: over the threshold on 31 August, apply by 30 September, registered from 1 October.

The 30-day forward test

The forward test does not wait for a month end. Notice 700/1 says you are also liable if “at any time, you expect the value of your taxable supplies in the next 30 day period alone, to go over the registration threshold.” The word “alone” matters: this test ignores the previous 12 months and looks only at what you expect in the next 30 days. It catches a business that wins one large contract or launches something that will sell more than £90,000 in a month.

The deadline is the end of that 30-day period, and the effective date is earlier than the backward test would give. GOV.UK says “your effective date of registration is the date you realised, not the date your turnover went over the threshold.” Its example: on 1 May you agree a £100,000 contract to provide services, to be paid at the end of May. You must apply by 30 May, and your effective date is 1 May.

In practice the forward test is the one that gets missed, because nothing in a sales report flags it. It turns on what you knew, so keep a note of when a large deal was agreed.

Effective date, late registration and the VAT you did not charge

The effective date of registration is fixed by when you became liable, not by when you applied. Notice 700/1 says: “Regardless of when you let HMRC know, we’ll register you from the date you were liable to be registered.” It continues: “You’ll also have to account for VAT from that date even if you did not charge it to your customers.” GOV.UK’s version is shorter: if you register late, “you must pay VAT on any sales you’ve made since the date you should have registered.”

So a late registration creates a block of sales, between the effective date and the day you start charging VAT, on which VAT is owed but was never collected. Notice 700/1 says you may be able to offset input tax on costs for which you hold VAT invoices against it, under the normal rules. It also warns that a late notification can bring a penalty under Schedule 41 of the Finance Act 2008, which section 14 says could be equal to the VAT you should have paid. How much VAT is due on each of those sales is a question for your accountant.

There is also a gap at the start of an on-time registration, while you wait for your number. Notice 700/1 says not to show VAT as a separate item on invoices until you have your registration number. You may increase your prices to include VAT, and once the number arrives you should send your VAT-registered customers invoices showing VAT within 30 days. GOV.UK’s worked example adds 20% to a £100,000 contract, invoices £120,000, then reissues the invoice showing £20,000 VAT once the number arrives.

Exception from registration, exemption, and the £88,000 deregistration threshold

A business that goes over the threshold because of a one-off spike can ask not to be registered. Notice 700/1 calls this exception from registration. You may not have to register if, at the end of any month, your taxable supplies went over the threshold in the last 12 months and “you can show HMRC that your taxable supplies will not go over the deregistration threshold in the next 12 months.” You have to apply, and HMRC writes to confirm. If HMRC is not satisfied, it registers you from the day you were liable, so apply early. An exception is not permanent: the notice says to keep checking your taxable supplies every month.

Exemption from registration is a different thing. It is for businesses whose taxable supplies are all or mostly zero-rated. If some VAT would be due, you have to show that your input tax would normally be more than your output tax, and an exempted business cannot reclaim input tax.

The deregistration threshold is £88,000, the current limit in the supplement to Notice 700/1. Once registered, a business can ask HMRC to cancel if, in the words of Notice 700/11, it can satisfy HMRC that its “taxable turnover in the next 12 months will not exceed the VAT registration cancellation limit.” The turnover is worked out excluding VAT. HMRC will not allow cancellation where the drop is because you intend to stop trading, or to suspend taxable supplies for 30 days or more in the next 12 months. Cancelling for low turnover is a request, not an obligation: GOV.UK says you can ask to cancel if your turnover falls below £88,000.

What counts toward taxable turnover

GOV.UK defines taxable turnover as “the total value of everything you sell that is not VAT exempt or ‘out of scope’ goods and services.” Notice 700/1 says it is the total value of the taxable supplies, “including the zero-rated ones”, that you make in the UK or Isle of Man.

In: standard-rated, reduced-rated and zero-rated sales. GOV.UK’s list also includes goods hired or loaned to customers, business goods used for personal reasons, goods bartered, part-exchanged or given as gifts, services you received from businesses in other countries that you had to reverse charge, goods and services subject to the domestic reverse charge, and building work over £100,000 your business did for itself.

Out: exempt supplies, such as insurance, providing credit and certain education and training, and sales that are out of scope. Notice 700/1 also tells you to leave out capital assets you have sold, such as buildings, equipment or vehicles. If everything you sell is exempt, GOV.UK says you do not have to register, and Notice 700/1 says you will not be able to. GOV.UK notes one exception: a business based in Northern Ireland that only sells exempt or out of scope goods and services must register if it buys more than £90,000 of goods in any 12-month period from EU VAT-registered suppliers for use in the business.

Two special cases. If you take over a VAT-registered business as a going concern, GOV.UK says you must register if the combined taxable turnover of the new business and your existing one is over the threshold. And services you buy from businesses abroad that you have to reverse charge count toward your turnover even though you are the customer, so a software business buying tools from overseas suppliers needs to add them in.

Why Stripe Tax threshold monitoring is not HMRC’s test

Stripe Tax has a tool that tracks sales against registration thresholds, and it is easy to assume it watches the UK threshold for a UK business. It does not. Stripe’s monitoring documentation says it provides insight into places where you do not have a physical presence, “so obligations aren’t monitored for your home US state or country.” For a business based in the UK, the UK is the home country.

The UK row Stripe does show is a different rule. Stripe’s United Kingdom page lists the registration threshold as “1 transaction” and explains it with the rule for businesses based outside the UK. The £90,000 test does not appear there at all.

Even where the monitor does run, it counts something other than taxable turnover. Stripe says it tracks “your Stripe-processed sales (minus refunds) based on each customer’s location.” It only monitors Stripe-processed sales or imported transactions, so sales that never go through Stripe, such as cash or another processor, are missing. It assumes every sale uses your preset tax code and is taxable at the destination, so an exempt sale is counted as if it were taxable. It counts sales, so it never sees the reverse-charge services you buy. And it works from past transactions, so it cannot apply the 30-day forward test, which depends on what you expect rather than what you have sold. Stripe adds that new transactions reach the monitor within 7 days and that “it’s up to you to confirm whether registration is actually required.”

The practical rule: run HMRC’s test yourself, every month end, from your books. Once you are registered, add the United Kingdom registration in the Locations tab of the Stripe Dashboard. Stripe’s registration guide lets you choose Schedule tax collection and enter the effective date, so collection starts on the date HMRC gives you rather than the day you remember to switch it on.

Setting up QuickBooks Online on the effective date

The effective date HMRC confirms is the date your bookkeeping changes, so it is also the date to set QuickBooks Online up around. Intuit’s help article on setting up VAT lists what to have ready: your 9-digit VAT registration number, your filing frequency, your accounting method, and your VAT accounting scheme.

In QuickBooks Online you select Set up VAT, then, in Intuit’s words, “Select the month you need to start calculating VAT from.” For a new registration, pick the month that contains your effective date of registration, since Notice 700/1 says you account for VAT from that date, and check it against the first VAT period HMRC confirms. You then choose how often you file VAT returns with HMRC, choose Standard if you record income when you send the invoice or Cash if you record it when payment arrives, and enter your VAT registration number. Intuit says you can change the VAT period, filing frequency, accounting method and registration number later through Edit settings.

Intuit also says all VAT-registered businesses must use Making Tax Digital to submit returns, and that you will need to connect your QuickBooks account to HMRC before filing. GOV.UK says HMRC signs a newly registered business up to Making Tax Digital for VAT unless it is exempt.

The late-registration gap needs separate handling. If the effective date is earlier than the day you started charging VAT in Stripe, the sales in between carry VAT you owe but did not collect. Agree with your accountant how that VAT is recorded in QuickBooks Online and how it reaches your first return, and note the effective date and the Stripe collection start date in your close notes.