The two tests

You must register for VAT if either applies.

The backward-looking test. Your VAT-taxable turnover over any rolling twelve months goes over £90,000. This is the one people get caught by, because the twelve months are not your tax year or your accounting year — they are the last twelve months, recalculated every month. A strong autumn followed by a strong spring can push you over in June even though neither year on its own looks close.

The forward-looking test. You expect your turnover to go over £90,000 in the next 30 days alone. One large contract can trigger this by itself, and it applies from the moment you realise — not when the money arrives.

The deregistration threshold is £88,000. Both figures are unchanged for 2026/27.

Deadlines, and why they matter

The two tests have different deadlines, and applying the wrong one is how people register late.

Backward-looking test. Register within 30 days of the end of the month you went over. Your registration takes effect from the first day of the second month after you crossed.

Forward-looking test. Register before the end of that 30-day period, and registration takes effect from the date you realised you would go over — not the first of any month, and not the date the money actually arrives.

That gap is where the damage happens. If your registration is effective from 1 October and you carry on invoicing without VAT until December, you still owe HMRC the VAT on everything you invoiced from 1 October — whether or not you charged it. On £20,000 of work that is £3,333 out of your own pocket, plus a possible late-registration penalty.

Check the rolling total monthly. It takes two minutes and it is the difference between planning for VAT and paying for it.

What counts towards the £90,000

Almost everything you invoice. Labour, materials you supply, call-out charges — the full value of standard-rated and reduced-rated work, plus zero-rated work.

What does not count: work that is genuinely exempt or outside the scope of VAT, and the sale of capital assets like a van. Some construction work is zero-rated rather than exempt — new-build housing, for example — and zero-rated turnover does count towards the threshold even though you charge 0% on it. This trips up new-build specialists regularly.

It is turnover, not profit. Your costs make no difference to the test.

If you work in construction, read this before you register

Once you are VAT registered and working for other VAT-registered businesses in the CIS chain, the domestic reverse charge usually applies. You do not charge them VAT — they account for it themselves. Your invoice shows no VAT and carries a note saying the reverse charge applies.

The consequence is a cash-flow one, and it goes in your favour less often than people expect: you no longer hold your customers’ VAT between charging it and paying it over, but you can still reclaim VAT on everything you buy. Many subcontractors end up in a permanent repayment position and switch to monthly VAT returns to get the money back faster.

Should you register voluntarily?

Sometimes worth it, sometimes not.

Register early if most of your customers are VAT-registered businesses — they reclaim the VAT so your price is unchanged to them, and you start reclaiming VAT on your van, tools and materials.

Stay out if you mostly work for homeowners. They cannot reclaim anything, so registering makes you 20% more expensive overnight against every unregistered competitor.

Some sole traders deliberately manage turnover to stay under £90,000. Turning work down is legal, but be careful: it usually costs more than the VAT would have. And splitting the business in two to keep both halves under the threshold is not a way round it — HMRC can direct that artificially separated businesses are treated as a single taxable person, with retrospective effect.

Common questions

What is the VAT threshold for 2026/27?

£90,000 of VAT-taxable turnover over any rolling twelve months. The deregistration threshold is £88,000.

Is the threshold based on my tax year?

No. It is any twelve consecutive months. Check the rolling total every month, not once a year.

What happens if I register late?

You owe HMRC the VAT from the date registration should have taken effect, whether or not you charged it to your customers. HMRC can also charge a penalty based on how late you are.

Do materials count towards the threshold?

Yes, if you are invoicing them to the customer. The test is the full value of what you invoice, not your profit on it.

Can I go back under the threshold and deregister?

Yes. The test is forward-looking: you can apply as soon as you expect your taxable turnover over the next twelve months to be below £88,000. Your historic turnover does not have to have fallen first, so a business that has just lost its biggest customer can apply straight away.

I went over because of one big job — do I definitely have to register?

Not necessarily. You can apply to HMRC for an exception from registration if you can show your turnover for the next twelve months will be below the £88,000 deregistration threshold. Apply at the time — it is much harder to argue after the fact.

Related guides

• When should a tradesperson register for VAT?

• The VAT reverse charge for construction, explained

• Making Tax Digital: what sole-trader tradespeople need to know

Written and reviewed by the TradePilot team. Last reviewed 2 August 2026. Figures on this page use the 2026/27 tax year for England, Wales and Northern Ireland, and are reviewed every April. We are not accountants — this is general information, not advice.