VAT threshold for tradespeople: what happens at £90,000

Turnover, not profit, is what counts. VAT registration is triggered by your taxable turnover, the total value of what you sell before any costs come off, not what you actually keep. A busy, thin-margin trade can cross £90,000 in turnover long before it feels like a £90,000 business.

Once you're over the threshold, registering is not optional. Below it, registering is a genuine choice, and the right answer depends on who your customers are and what your work actually costs to deliver, covered further down this page.

• ▸Work out your rolling 12-month taxable turnover, not your tax-year or calendar-year figure. See "The two tests" below.
• ▸If you've gone over £90,000 in the last 12 months, you must register, usually within 30 days of the end of the month you crossed it.
• ▸If you expect to go over £90,000 in the next 30 days alone, one large contract for example, you must register by the end of that 30-day period instead, backdated to the day you realised.
• ▸Below £90,000, registration is a genuine choice. Read "Voluntary registration" and "Should you deliberately stay below the threshold" before deciding either way.

Most businesses register under the backward-looking test. It is a rolling 12-month total, checked continuously, not your tax year or calendar year. Every month you look back over the previous 12 months and add up your taxable turnover; if that rolling total goes over £90,000, you must register, usually within 30 days of the end of the month you went over it, with registration taking effect from the first day of the second month after you crossed the threshold.

The forward-looking test catches a different situation: a business that expects to cross £90,000 in the next 30 days alone, most often because of one large contract landing at once, even though its rolling 12-month total hasn't gone over yet. Here you must register by the end of that 30-day period, and the effective date is the date you realised you'd cross it, not the date your turnover actually goes over £90,000.

Taxable turnover is the total value of everything you sell that isn't VAT-exempt or out of scope. That includes zero-rated, reduced-rated and standard-rated sales alike, so zero-rated construction work (new-build dwellings, for example) still counts towards your £90,000 even though no VAT is charged on it. It also includes goods you hire or loan out, business goods you take for personal use, goods you barter or part-exchange, and services you buy from businesses in other countries that you have to reverse charge.

VAT-exempt and out-of-scope income does not count. Most everyday trade income is standard, reduced or zero-rated rather than exempt, so this exclusion matters less for most tradespeople than it would for, say, a business dealing mainly in insurance or finance, but it's worth checking if any part of what you sell is genuinely exempt rather than just zero-rated. The two are not the same thing: a zero-rated sale still counts towards your threshold, an exempt one does not.

You must charge VAT, at 20% standard rate, 5% reduced rate or 0% zero rate depending on the supply, on relevant sales from your effective registration date, and account for it to HMRC.

You must issue VAT invoices where the customer is VAT-registered. A VAT invoice carries more information than an ordinary invoice, including your VAT registration number and a breakdown of the VAT charged, so it's worth setting your invoice template up properly before your first VAT-registered sale rather than reworking it under pressure.

You send a VAT return, normally every three months (your "accounting period"), showing the VAT you've charged (output tax) and the VAT you've paid to other businesses (input tax). The deadline for submitting it and paying what you owe is usually one calendar month and seven days after the accounting period ends.

Making Tax Digital for VAT applies from day one. Every VAT-registered business, regardless of turnover, has to keep digital records and submit VAT returns through compatible software; HMRC signs newly registered businesses up automatically unless an exemption applies. This is separate from, and applies regardless of, whether you're also in Making Tax Digital for Income Tax.

You can reclaim input VAT on eligible business costs, materials, tools, van purchases and running costs, professional fees and more, provided you hold a valid VAT invoice for them. This is the part that offsets some of what registration appears to cost on paper; how much it offsets depends heavily on how much VAT-bearing cost sits behind your work, covered in the next two sections.

Not automatically, and it depends on a choice you make as much as on the VAT rules themselves. You can either add VAT on top of your existing price, or hold your all-in price steady and treat it as VAT-inclusive from now on. The two have very different effects on what you actually declare as a sale.

The same registration event can land very differently on two trades, because two things vary: how much of the VAT you charge a customer can actually be recovered, and how much VAT you can recover on your own costs.

A VAT-registered business customer may often recover the VAT you charge, but only to the extent it relates to their own taxable business activity and is otherwise recoverable. It isn't automatic: exempt or partially exempt activity, non-business use, and HMRC's blocked input-tax rules for certain categories of cost can all restrict what a customer can recover, whatever their VAT status. A domestic customer, or a customer who isn't VAT-registered at all, has no mechanism to recover VAT charged to them, so they feel the 20% in full, or you do, if you hold your price instead. Where a construction supply falls under the domestic reverse charge instead of normal VAT invoicing, covered in "VAT, CIS and the domestic reverse charge" below, the position is different again: the customer accounts for the VAT directly to HMRC rather than being charged it by you at all.

You can register for VAT at any turnover level, including well below £90,000. Two reasons trades commonly consider it: reclaiming input VAT on significant materials, tools or van costs, particularly when investing in the business, and looking more established when quoting for VAT-registered commercial clients who may expect an invoice with VAT on it as a matter of course.

The downside is real too: quarterly VAT returns, Making Tax Digital software and record-keeping, and, if your customers are mostly domestic, either a price rise or a margin hit for no offsetting benefit on the customer side. Voluntary registration suits a business whose costs or customer base look like the commercial column in the table above more than the domestic one; for a domestic-heavy, labour-heavy trade under the threshold, it's a genuine trade-off rather than an obvious win.

Some businesses do factor the threshold into pricing or growth decisions near £90,000, and that's a legitimate commercial consideration; this page isn't telling you to grow regardless of the tax consequences, or to avoid growth to dodge them. It's a different question from artificially splitting a single business to stay under the threshold, which is where the risk sits.

HMRC's test for artificial separation looks at whether the different persons or entities concerned are closely bound together by financial, economic and organisational links, under anti-avoidance provisions in the VAT Act 1994 (Schedule 1, paragraph 1A(2)). Financial links include one part funding or supporting another; economic links include one part's activities existing largely for the other's benefit; organisational links include shared management, premises or staff. HMRC has stated explicitly that it does not need to prove you intended to avoid VAT, only that the artificial separation resulted in VAT being avoided. Genuinely separate, independently run businesses, including genuine franchising arrangements, are not what this targets; running the same set of customers and staff through two invoicing systems to keep each one under £90,000 is exactly the pattern it's aimed at.

If HMRC concludes a separation is artificial, it can issue a Notice of Direction requiring the separated parts to register as a single business, which unwinds the split's tax effect and can create backdated VAT exposure on turnover that was never charged VAT at the time. HMRC also specifically scrutinises deregistration requests that follow a sudden drop in reported turnover, for exactly this reason.

Weigh this against what staying under the threshold actually saves. Given the previous two sections, a materials-light, domestic-heavy trade genuinely does feel VAT registration more than a commercial, materials-heavy one, so the calculation isn't the same for everyone. But turning away real, organic growth from one legitimate business to stay under £90,000 has its own cost, and it's a different decision from artificially dividing a business that HMRC would treat as a single business anyway.

VAT and the Construction Industry Scheme are separate systems that happen to interact. CIS deductions are about Income Tax and National Insurance; VAT is a separate tax on the supply itself. See TBV's CIS guide for how CIS deductions work; this section covers only where VAT and CIS meet.

Since 1 March 2021, most standard or reduced-rated construction services reported under CIS, supplied between two VAT-registered, CIS-registered businesses, use the domestic reverse charge instead of normal VAT invoicing. Rather than the supplier charging VAT and the customer paying it over, the customer accounts for that VAT directly to HMRC instead, so VAT cash doesn't need to change hands between the two businesses at all. The supplier still shows the reverse charge on the invoice; they just don't add VAT to the amount the customer pays them.

The reverse charge doesn't apply where the customer is an "end user", broadly a business or person receiving the construction services for their own use rather than to onward-supply as construction services themselves. Ordinary VAT rules apply to end-user customers instead. Don't assume either way: check the official guidance for your situation, and get written confirmation of end-user status from a customer where it's genuinely unclear, rather than guessing.

Building a genuinely new dwelling is usually zero-rated, 0% VAT, on both the construction services and materials incorporated into the build. Converting a building into a home, or between different kinds of residential use, and renovating a house or flat that's been empty long enough, are usually reduced-rated at 5% instead of the standard 20%.

Installing certain energy-saving materials, such as insulation, solar panels, heat pumps and qualifying battery storage, in residential accommodation is currently zero-rated at 0%, not merely reduced-rated. This is a temporary relief, in place from 1 May 2023 to 31 March 2027, after which installations of these materials are due to revert to the reduced rate of 5%. Which specific materials and installations qualify is set out in VAT Notice 708/6, not reproduced here.

These are general patterns, not a substitute for checking the specific job. Whether a particular contract genuinely qualifies, and at what rate, depends on conditions set out in VAT Notice 708 (for new-build and conversion work) and VAT Notice 708/6 (for energy-saving materials) that this page doesn't attempt to reproduce in full. Check the current guidance against your actual job, or ask an accountant, before applying a zero or reduced rate on an invoice.

• ▸Based on my actual customer mix, how much of a 20% VAT charge could I realistically pass on, and how much would I need to absorb?
• ▸How much input VAT could I reclaim on what I already spend on materials, tools, van costs and subcontractors?
• ▸Does voluntary registration make sense for me now, given how I invoice and who I invoice?
• ▸Does the domestic reverse charge apply to my typical contracts, and how do I check a customer's end-user status properly?
• ▸What software do I need so my VAT return and Making Tax Digital obligations are handled properly from day one, not bolted on afterwards?
• ▸If I'm close to the threshold, what's my actual plan for the month I expect to cross it?

This page explains how VAT registration currently works for a UK trade business, checked directly against GOV.UK/HMRC guidance and HMRC's own internal manuals on 19 August 2026, not against secondary summaries alone. It is general information, not personalised tax advice, and it cannot tell you whether the domestic reverse charge, a zero or reduced VAT rate, or a specific end-user status applies to your own contract.

The illustrative tables on this page use round, clearly hypothetical figures to show mechanics, not a forecast of your own results. Your real position depends on your actual materials, labour and overhead mix, and on how much input VAT you can reclaim, which only an accountant working from your own figures can tell you.

Next review: after the next confirmed change to the VAT registration or deregistration thresholds, or within 90 days of the date above, whichever comes first.