VAT Threshold Planning
- edenbookkeeping
- Sep 21
- 3 min read
For many small businesses, crossing the VAT registration threshold is both a milestone and a challenge. In the UK, the VAT threshold for 2025 remains at £90,000 taxable turnover over a rolling 12-month period.
The problem? Business owners often don’t realise they’ve crossed it until it’s too late.
HMRC requires registration within 30 days of exceeding the threshold. If you miss the deadline, you could face penalties, backdated VAT bills, and interest charges.
At Eden Bookkeeping Solutions, we help ambitious small business owners keep on top of these rules. With some forward planning, VAT doesn’t have to catch you by surprise.
How the VAT Threshold Works
The threshold is based on a rolling 12 months, not your financial year.
All taxable sales count (standard and reduced rate), but exempt sales don’t.
Go over £90,000 and you must register within 30 days — unless you qualify for exemption.
👉 One big invoice, project, or contract can tip you over.
Exemption Rules for One-Off Transactions
Not every business that passes the threshold must register immediately. HMRC allows exemptions in cases where:
Your turnover only exceeds £90,000 because of a one-off, exceptional transaction.
You can show that your turnover will fall back below £90,000 in the next 12 months.
Example:
A builder usually earns £70,000 a year but takes on a one-time £25,000 project.
This pushes turnover to £95,000, but the following year they expect sales to return to £70,000.
They can apply to HMRC for an exemption from VAT registration.
⚠️ Important: You can’t assume the exemption. You must apply to HMRC in writing and wait for confirmation. Without it, you’ll be expected to register.
Why VAT Threshold Planning Matters
Crossing the threshold changes your responsibilities. It means:
Charging VAT (20% standard rate) on invoices.
Submitting VAT returns, usually quarterly.
Moving onto Making Tax Digital (MTD) for VAT software.
For many businesses, it can affect cash flow and pricing. If most of your customers are VAT-registered, they can reclaim the VAT and it won’t matter. But if your clients are consumers or small businesses below the threshold, adding 20% can make you less competitive.
5 Steps to Plan Ahead for VAT
1. Track Turnover Monthly
Don’t wait until year-end. Use software like Xero to run rolling 12-month reports and spot when you’re nearing £85k–88k.
2. Factor in Growth
If your business is growing, plan as if VAT registration is around the corner. One extra contract or busy season could push you over.
3. Understand the Financial Impact
Ask:
Will my customers reclaim VAT?
Should I adjust my pricing strategy?
How will VAT affect my cash flow?
4. Consider the Flat Rate Scheme
The Flat Rate Scheme (FRS) simplifies VAT reporting and can even save money for some businesses. It works by applying a fixed percentage of VAT to your gross turnover instead of reclaiming VAT on purchases individually.
5. Get Professional Advice
An experienced bookkeeper can help you decide whether to:
Register voluntarily now.
Apply for exemption if turnover will drop again.
Join the Flat Rate Scheme.
Voluntary VAT Registration — Pros and Cons
Even if you haven’t hit £90k, you can register voluntarily.
Pros:
Reclaim VAT on purchases.
Appear more established to bigger clients.
Spread the admin load before you’re forced to register.
Cons:
You must charge VAT on all taxable sales.
Adds reporting requirements.
For tradespeople, consultants, and contractors working with VAT-registered businesses, voluntary registration often makes sense.
VAT Check-Up
As the financial year closes, it’s the perfect time to:
Review turnover vs. the £90k threshold.
Check whether growth projections could push you over.
Apply for exemption if a one-off project tipped you above.
Explore voluntary registration or the Flat Rate Scheme.
A little forward planning can save a lot of stress — and unexpected bills — later.
FAQs
Q1: What is the VAT threshold in 2025?
The VAT registration threshold is £90,000 taxable turnover in a rolling 12-month period.
Q2: Do I need to register if one big project pushed me over?
Not always. You can apply to HMRC for exemption if turnover is expected to drop back below £90,000 in the following 12 months.
Q3: How long do I have to register after crossing the threshold?
You must register within 30 days of exceeding the £90,000 threshold.
Q4: Can I register for VAT voluntarily?
Yes. Voluntary registration lets you reclaim VAT on purchases and may suit businesses with VAT-registered clients.
Q5: What is the Flat Rate Scheme?
A simplified VAT scheme where you pay a fixed percentage of your turnover, rather than reclaiming VAT on individual expenses.
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