VAT Registration
Businesses are required to register for VAT if their turnover of taxable goods and/or services is above a given threshold. This note discusses how the registration threshold has been set in recent years and the debate there has been about whether the threshold is too high or too low.
VAT is charged on the supply of all goods and services made in the course of a business by a taxable person, unless they are specifically exempt. All businesses must register for VAT if their annual turnover of taxable goods and/or services is above a given threshold, currently set at £90,000. Businesses may cancel their VAT registration if their annual turnover falls below a second set threshold, currently set at £88,000.
VAT is charged on the additional value of each transaction. It is collected at each stage of production and distribution. A business pays VAT on its purchases (known as input tax), and charges VAT on its sales (known as output tax). It will settle with HM Revenue & Customs (HMRC) for the difference between the two. In the end the cost of the tax is borne by the final consumer.
The main body of VAT law is consolidated in the VAT Act (VATA) 1994, as amended. Section 1 and schedule 1 to the Act are the main provisions regarding VAT registration.
Recent changes to the VAT registration thresholdThere have been a number of reviews of the registration threshold over the last thirty years without any major reforms.
The threshold was frozen at £85,000 for the period 1 April 2017 to 31 March 2024, when it was increased to £90,000.
This increase was announced by the then Chancellor Jeremy Hunt in the Spring 2024 Budget, when he noted that this represented “the first increase in seven years” and that it would “bring tens of thousands of businesses out of paying VAT altogether, and encourage many more to invest and grow.”
The Chancellor Rachel Reeves did not announce any changes in the VAT registration threshold in either the Autumn 2024 Budget or the Autumn 2025 Budget, though there have been calls for the threshold to be increased in line with inflation.
Following the 2025 Budget, the Exchequer Secretary Dan Tomlinson set out the government’s position on setting the registration threshold in answer to a PQ on 19 March 2026. The minister noted that the UK’s threshold was higher than any EU country and the joint highest in the OECD. As a result, “the majority of UK businesses are not in the VAT system at all, reducing administrative burdens and supporting their growth.” The minister went on to add, “the government’s approach to the VAT registration threshold aims to balance the impacts on small businesses, including their growth and financial sustainability, with the needs of the wider economy and the public finances.”
Further guidanceHMRC’s VAT Guide (VAT Notice 700, 18 September 2025) provides an overview of the basic rules of VAT (see section 4). HMRC also publish guidance on the procedure for registering for VAT (VAT Notice 700/1: Who should register for VAT, 4 August 2025). A supplement to the second of these publications sets out the VAT registration thresholds since 1990.
HMRC provide an online tool to help business owners estimate the implications for their business from registering for VAT.