UK VAT Registration Threshold May Rise to £100,000

The UK Government is considering increasing the VAT registration threshold from £90,000 to £100,000 as part of the proposals for the Autumn Budget 2025. This potential change is particularly significant for small businesses, contractors, and freelancers who currently manage turnover around the existing threshold. In this article, we explain what this proposed increase means for UK businesses, the expected benefits, compliance requirements, and best practices for managing VAT obligations effectively. We also briefly explore how registration thresholds in the UK compare to those in the EU to provide broader context.

Understanding the VAT Registration Threshold

The VAT registration threshold is the annual taxable turnover level at which a business must register for VAT with HM Revenue and Customs (HMRC). Currently, businesses must register if their VAT-taxable turnover exceeds £90,000 in a rolling 12-month period. Voluntary registration below the threshold remains optional and in some cases, advantageous.

Who Is Affected by the Threshold?

This threshold is crucial for:

• Sole traders and contractors managing fluctuating annual turnover
• Small and micro businesses aiming to stay lean and competitive
• Businesses planning to scale while monitoring compliance obligations

Many SMEs currently hovering near the £90,000 threshold spend significant effort managing turnover to avoid compulsory registration. The proposal to increase the threshold to £100,000 seeks to alleviate this administrative burden and reduce VAT compliance costs for smaller entities.

Proposed Increase: Key Details

The proposed change would adjust the threshold for VAT registration to £100,000 and the deregistration threshold to £98,000. This means:

• Compulsory VAT registration would apply if taxable turnover exceeds £100,000 over any 12-month rolling period
• Voluntary deregistration could be requested if turnover falls below £98,000

According to HMRC estimates, around 28,000 additional businesses could avoid mandatory VAT registration if the threshold is increased, providing material compliance savings, especially in administrative and software costs.

Timeline and Next Steps

If implemented in the Autumn Budget 2025, the new thresholds would likely take effect from the start of the 2026/27 tax year. However, businesses should remain attentive to announcements on HMRC’s official site for formal confirmation and transition arrangements.

Compliance Implications

Monitoring Turnover Against the Threshold

Businesses near the threshold level should continue to monitor their taxable turnover on a monthly rolling basis over 12 months. It’s important to aggregate all VATable supplies, including:

• Standard-rated goods and services
• Reduced-rated and zero-rated supplies
• Supplies made to overseas customers (exports, B2B services)

Exempt supplies, such as certain education or health services, do not contribute to the VAT threshold.

Checklist: What To Do If Your Turnover Approaches the New Threshold

• Set up a monthly check of rolling 12-month turnover
• Track VATable vs exempt revenue accurately
• Use accounting software with VAT tracking functionality
• Prepare for registration processes if approaching £100,000 in turnover
• Seek VAT advice for complex or multi-entity business structures

VAT Registration: Obligations and Process

When You Must Register

If your VAT-taxable turnover exceeds the registration threshold in a 12-month period, you must notify HMRC within 30 days of the end of the month during which this occurred. Failure to meet this deadline may result in late registration penalties.

How to Register

1. Set up a Government Gateway account (if you don’t already have one)
2. Apply online via HMRC’s VAT registration portal at www.gov.uk/vat-registration
3. Receive your VAT number, Certificate, and configure VAT reporting processes

Once registered, businesses must charge VAT on applicable sales, submit Making Tax Digital (MTD) compliant VAT returns, and maintain digital records.

Voluntary Registration Considerations

Even if your turnover is below the threshold, voluntary registration may be beneficial in certain cases. For example:

• If you incur significant input VAT on expenses
• If your customer base is mainly VAT-registered businesses
• To enhance business credibility in B2B sectors

However, registering for VAT also requires regular reporting, adherence to digital recordkeeping, and the potential need for software upgrades. These responsibilities must be weighed carefully.

European VAT Thresholds: A Comparative Insight

Most EU member states operate with much lower VAT registration thresholds than the UK. For example:

*France uses separate thresholds for service providers and goods traders. See the EU Commission’s VAT Database for full details on other countries.

By comparison, the UK’s already generous threshold – among the highest globally – offers small businesses broader flexibility before mandatory registration applies. The proposed change could extend this advantage further.

Best Practices for Businesses near the VAT Threshold

Businesses operating near the threshold should consider the following best practices:

• Implement robust revenue tracking: Use accounting systems that automate rolling calculations of taxable turnover.
• Forecast turnover increases: Monitor pipeline contracts and seasonal fluctuation that may tip turnover over the limit.
• Evaluate voluntary registration scenarios: Conduct cost/benefit analysis with your accountant to assess the optimal VAT status.
• Prepare for digital compliance: Even small businesses must comply with Making Tax Digital rules when VAT-registered.

Conclusion

The potential increase in the UK’s VAT registration threshold to £100,000 represents a welcome relief for tens of thousands of growing UK businesses. It will ease administrative burdens and offer flexibility in managing growth and compliance obligations. However, proactive VAT planning—and an awareness of when thresholds are approached—remains essential to avoid penalties and maintain good standing with HMRC.

For more information and updates on VAT registration and thresholds, consult the official HMRC guidance on registering for VAT.