If you run a small business, VAT can feel like one of the more daunting parts of the tax system, but a few recent updates make it worth revisiting where things currently stand, whether you’re already registered or wondering if you soon will be.
The registration threshold hasn’t moved
Despite ongoing speculation about a possible cut, the VAT registration threshold remains frozen at £90,000 for the 2026/27 tax year. If your VAT-taxable turnover on a rolling 12-month basis, not your tax year stays below that figure, you don’t need to register. It’s worth keeping an eye on this each month rather than only at year end, since HMRC looks at any rolling 12-month window, and there’s also a “forward test”: if you have reasonable grounds to expect you’ll exceed £90,000 in the next 30 days alone (say, after landing a large contract), you need to register from that point, not when the cash actually lands.
For many small businesses, sitting just under this threshold is a familiar balancing act. Some deliberately manage growth to stay below it; others register voluntarily because their customers are VAT-registered businesses who can reclaim the VAT charged, making it cost-neutral while unlocking the ability to reclaim VAT on their own purchases.
VAT Rates: Most goods and services are standard-rated at 20%. Some items, like domestic energy, use a reduced rate of 5%, while others (like children’s clothes and most books) are zero-rated. Exempt items do not charge VAT.
Schemes that can ease day-to-day VAT admin
If you’re VAT-registered, a couple of schemes remain worth considering to simplify your bookkeeping and support cash flow:
- Flat Rate Scheme: rather than tracking VAT on every purchase and sale, you apply a fixed percentage to your turnover and pay that to HMRC, keeping the difference between what you charge customers and what you hand over. The rate depends on your trade sector — it typically ranges from around 12% up to 16.5% (the higher end applies to “limited cost” businesses with minimal goods spend), so it’s worth checking which rate applies to your specific sector rather than assuming a single figure.
- Cash Accounting Scheme: instead of accounting for VAT when you invoice, you account for it when payment actually lands in your account. This can be particularly helpful if you deal with clients on longer payment terms, since you’re not paying VAT to HMRC on money you haven’t yet received.
- Annual Accounting Scheme: You submit one VAT return per year and make advance monthly or quarterly payments based on estimated VAT, which helps with budgeting
In summary
VAT rules shift more often than many small business owners have time to track. If you’re unsure whether any of these changes affect your business, or whether voluntary registration or a particular scheme makes sense for you, it’s worth a conversation with your accountant to review your specific position.
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