How the threshold actually works
The test is a rolling twelve months, not your tax year or your accounting year. At the end of every month, you add up the last twelve months of taxable turnover. If that figure goes over £90,000, you have thirty days to register, and you start charging from the first day of the month after that.
There is a second trigger people forget. If you expect to go over £90,000 in the next thirty days alone, perhaps because one large contract has landed, you register straight away and charge from that day. One invoice can do it.
The month it catches people
Almost nobody misses the threshold by miles. They miss it by a few thousand in a month when they were not watching, and find out at year end when it is six months too late. By then the VAT is still owed on everything invoiced since the registration date, whether or not you charged it.
- A strong quarter pushes the rolling total up faster than the calendar year suggests
- One-off projects count, even if they will never repeat
- Expenses you recharge to clients usually count as turnover
“Registering takes twenty minutes online. Deciding whether your prices go up by twenty per cent takes longer.”
What to tell your clients
If your clients are VAT-registered businesses, this is a non-event. They reclaim what you charge, and nothing changes for either of you. If your clients are the public, or small businesses that are not registered, your price has in effect gone up by a fifth unless you absorb it.
Decide which before you send the first new invoice, tell people in one short email, and give them a date. Nobody minds the change. They mind finding it on an invoice without warning.
One paragraph, sent a fortnight ahead, heads off most of the awkward calls.
Choosing a scheme
Standard accounting is the default and suits most businesses with real costs to reclaim. The Flat Rate Scheme charges a fixed percentage of gross turnover and gives up most reclaims, which can work out better if you buy very little. Cash accounting means you pay VAT when clients pay you, which matters if you often wait sixty days to be paid.
There is no universal answer. We run the numbers both ways on your last twelve months, pick whichever leaves you better off, then review it once a year.
Getting the timing right
If you are within about £20,000 of the threshold, start checking the rolling total every month rather than once a year. That is the whole trick. Everything painful about VAT registration comes from finding out late, not from the tax itself.
Our clients do not have to watch it. It is in the monthly report, and we flag it roughly two months before it becomes a problem.
