Last checked October 2026 · by the PaySorted team
The thresholds
| Threshold | Amount |
|---|---|
| Must register when taxable turnover goes over | £90,000 |
| Can ask to deregister when turnover falls below | £88,000 |
"Taxable turnover" means the total you've invoiced for VATable work — labour and materials — before any costs come off. For most trades that's everything you charge.
The two tests
1. Looking back (the rolling 12 months). At the end of every month, add up your taxable turnover for the last 12 months. If it's over £90,000, you must register within 30 days of the end of that month. Your registration starts from the first day of the second month after you went over.
2. Looking forward (the next 30 days). If you expect to go over £90,000 in the next 30 days on their own — for example, you've won one big contract — you must register by the end of that 30-day period.
If you only went over temporarily, you can ask HMRC for an "exception" so you don't have to register.
Example
A builder invoices about £7,000 a month, then has a busy summer. At the end of August, the last 12 months add up to £91,500. They must register by 30 September, and they're VAT registered from 1 October. From then on, every invoice must charge VAT (or use the reverse charge, below).
Keep an eye on the running total. Registering late means you may owe HMRC the VAT you should have charged, even though you never collected it from customers.
What it means for trades
- Householders pay 20% more. Homeowners can't reclaim VAT, so either your prices go up or your margin goes down.
- Business customers don't mind. VAT-registered customers reclaim it.
- Construction reverse charge. If you work for VAT-registered contractors under CIS, you often don't charge VAT at all — the contractor accounts for it. See the VAT domestic reverse charge.
- You can reclaim VAT on tools, vans, materials and fuel.
- Making Tax Digital for VAT applies from day one, so you need compatible software for your returns.
The Flat Rate Scheme
If your VAT turnover is £150,000 or less, the Flat Rate Scheme lets you pay HMRC a fixed percentage of your VAT-inclusive turnover instead of working out VAT on every purchase. You still charge customers 20%. Some current rates:
| Type of business | Flat rate |
|---|---|
| General building or construction | 9.5% |
| Labour-only building or construction (materials under 10% of turnover) | 14.5% |
| "Limited cost" business (spends very little on goods) | 16.5% |
You get 1% off in your first year of registration. Reverse-charge work isn't included in the scheme. The scheme can save time, but it isn't always cheaper — ask your accountant to run the numbers.
Should you register voluntarily?
You can register below £90,000. It can make sense if most of your customers are VAT-registered businesses and you buy a lot of materials or equipment. It rarely makes sense if most of your work is for householders, because you'd be adding 20% to their bill.
PaySorted handles both: VAT at 20%, reduced rates, or the domestic reverse charge wording, worked out on every invoice. Use the free VAT calculator to check a price.
General information based on gov.uk guidance (checked October 2026), not tax advice. Your accountant can confirm whether and when you should register.
Common questions
Is the VAT threshold based on profit or turnover?
Turnover. It's the total of your VAT-taxable sales before costs, including materials you charge for.
Is the VAT threshold measured over the tax year?
No. It's any rolling 12-month period. Check your total at the end of every month.
What is the VAT threshold in 2026?
You must register if your taxable turnover goes over £90,000. You can ask to deregister if it falls below £88,000.
Do I charge VAT to a contractor under CIS?
Often not. If you and the contractor are both VAT registered and the work is reported under CIS, the domestic reverse charge usually applies and the contractor pays the VAT to HMRC.