Approaching the £90K VAT Threshold? Here's Your Strategy Guide

What Happens at the £90K VAT Threshold UK

The current UK VAT registration threshold stands at £90,000. Once your VAT taxable turnover exceeds this in any rolling 12-month period, registration becomes mandatory. You must also register if you expect to exceed £90,000 within the next 30 days alone.

Missing the registration deadline can result in penalties and the requirement to account for VAT you should have charged but didn't.

Should I Go Limited Before VAT Registration?

Recent tax changes have shifted the sole trader vs limited company calculation:

• Below £60,000 profit: Sole traders typically pay less tax

• £60,000-£70,000: Tax burden is similar

• Above £80,000: Limited companies often pay more when extracting all profits

However, incorporation offers benefits beyond tax: limited liability protection, enhanced credibility with larger clients, and easier access to investment. The downsides include increased administrative burden, Companies House filing requirements, and loss of financial privacy.

VAT Registration Strategy for Small Business

When to Register Voluntarily

Consider early registration if:

• Most customers are VAT-registered businesses

• You have significant VAT-bearing expenses

• Major capital expenditure is planned

• VAT registration would enhance credibility

Cash Flow Impact

VAT fundamentally changes your cash flow:

• Effectively increases prices by 20% for non-VAT customers

• Quarterly VAT payments to HMRC

• Requirement for Making Tax Digital compliance

• Opportunity to reclaim VAT on business purchases

Preparing for VAT Registration: Essential Steps

1. Digital Systems Setup

Implement Making Tax Digital-compatible accounting software now. This prepares you for both VAT registration and the upcoming Making Tax Digital for Income Tax (from April 2026).

2. Financial Planning

• Calculate post-VAT margins

• Review pricing strategy

• Build cash reserves for VAT payments

• Consider the Flat Rate Scheme if eligible

3. Business Structure Review

Before reaching the threshold:

• Separate business and personal finances completely

• Create monthly management accounts

• Review customer contracts for VAT clauses

• Assess incorporation timing

Making Tax Digital VAT Requirements

From day one of VAT registration, you'll need:

• Compatible accounting software

• Digital record-keeping for all transactions

• Quarterly online submissions

• Digital links between software systems

Starting these processes before registration ensures a smooth transition and maintains compliance.

Your VAT Registration Action Plan

3-6 Months Before Threshold

• Conduct VAT impact analysis on pricing

• Get professional advice on timing

• Review business structure options

• Start monthly management accounts

Immediately

• Implement cloud accounting software

• Separate all business transactions

• Build VAT payment reserves

• Train team on new processes

Professional VAT Advisory Services

The complexity of VAT registration combined with business structure decisions demands expert guidance. Professional advisers help:

• Model scenarios specific to your situation

• Identify tax planning opportunities

• Ensure compliance while maximising efficiency

• Navigate the transition smoothly

Key Takeaway: Plan Before You're Forced to React

Approaching £90,000 turnover requires strategic thinking beyond simple compliance. Whether it's optimising your VAT registration timing, choosing the right business structure, or preparing for digital tax requirements, early planning maintains control over your business's growth trajectory.

Every business situation is unique. Your optimal approach depends on your customer base, growth plans, and cash flow requirements. Professional guidance ensures you make informed decisions that support sustainable growth.