The VAT threshold: £90,000 over any twelve months, not the tax year

What is the VAT threshold?

£90,000 of taxable turnover. Once what you have sold over the last twelve months goes past it, you must register for VAT and start charging it. It has been £90,000 since 1 April 2024.

Below it you can stay unregistered, which for most sole traders means invoices with no VAT on them at all. Above it you have no choice. There is a second, lower figure too: once you are registered, you can ask to cancel if your turnover drops below £88,000. That one is optional.

Has it changed? Not since 1 April 2024. It moves when a Budget says so, and every Budget brings a rush of people asking whether it is about to be cut. If you are reading this after one, check the figure on gov.uk before you trust the one here.

Why does the tax year not matter?

Because HMRC looks at the last twelve months, whenever they started. The question is not "will I go over £90,000 this tax year" but "did the last twelve months go over it", and that question comes round at the end of every month.

That is the part people miss. A busy summer can take you over in August while the tax year that ended in April came in comfortably under. Each month end, the month just finished joins the window and the same month last year drops out of it.

The test is not once a year. It is the last twelve months, read again at the end of every month.

A worked example

A fictional decorator has been growing steadily. At the end of May, the decorator's last twelve months come to £85,900. Here is the running total as each month finishes, with the month that joins and the one that leaves:

Nothing dramatic happened in August. It was a good month replacing a quieter one from a year before, which took the total from £89,100 to £91,300. That is how most people cross: not in one big job, but by a busy month nudging a total that was already close.

When you have to register

HMRC's rule is that you register within 30 days of the end of the month you went over, and your registration takes effect on the first day of the second month after it. For the decorator, over in August, that is a deadline of 30 September and VAT from 1 October. HMRC's own example has someone over on 15 July registering by 30 August, effective 1 September.

And if you went over only for a while, HMRC lets you apply for a registration exception. It writes to say whether you have one, and registers you if not. Whether yours is worth asking for is a question for whoever does your books.

What counts towards the £90,000?

What you sell, not what you keep. HMRC's taxable turnover is the total value of everything you sell that is not VAT exempt or out of scope, before any of your costs come off it.

So a job's materials count as much as its labour, because they are part of what you charged for. A kitchen fitter who invoices £12,000 for a job with £7,000 of units in it has added £12,000 to the total, not £5,000. The trades that buy and resell a lot of materials reach the threshold far sooner than their profit would suggest.

Zero-rated work counts too, which surprises people: it carries no VAT, but it is still taxable at 0%, so it goes into the total. What stays out is work that is exempt from VAT or outside its scope altogether.

How do I check my own figure?

Add up what you invoiced over the last twelve whole months, and do it at each month end. If the total is anywhere near £90,000, do it every month, because the busy one is the one that takes you over.

In Invoice Koi that is a minute's work. Open Reports and tap "⋯", the last of the period chips, which opens "Custom period". Tap the first month of the twelve, then the last, then "Set period". The figure beside "Invoiced" is every invoice you raised in those months, by the date you issued it, at its full total.

The period runs in whole months, from the first of one to the last day of the other, which is the same shape as HMRC's month-end test. Run it again next month with the window moved on by one.

What it does not do

It does not watch the threshold. Nothing in the app knows about £90,000, and it will not warn you as you get close. Reading the figure is your job, and a reminder in your own calendar on the first of each month is the honest way to make it one.

It counts invoices, not HMRC's categories. An exempt or out of scope sale on an invoice is in the total like any other. Drafts are not, and neither is anything you invoiced outside the app.

It counts one currency at a time. Reports add up the invoices in your report currency, so anything you billed in euros or dollars needs adding on.

Every report exports as a CSV, a spreadsheet or a PDF, which is the version to send whoever does your books when the figure gets close.

What changes on my invoices when I register?

From your registration date you charge VAT on your work, and the invoices you send VAT-registered customers have to be VAT invoices, with your VAT number on them. Before that date, no invoice of yours should show VAT at all.

That last part is a rule, not a style. VAT Notice 700 says only a VAT-registered business can issue a VAT invoice, and HMRC charges penalties for the unauthorised issue of one. So an invoice from before your registration carries no VAT and no VAT number.

Between the date and the number

Your registration can take effect before HMRC has sent your VAT number, and gov.uk is plain that "you must pay HMRC any VAT you owe from the date they register you", number or no number. HMRC's time limits give a newly registered business 30 days from being told its number to issue the VAT invoices it owes. What to send customers in the meantime is worth agreeing with whoever does your books.

In Invoice Koi

Setup asks "Do you charge VAT?". Answer "No" and your invoices go out with no VAT line at all: not even "VAT 0%", which would read to a customer as a registered business charging nothing. Answer "Yes, I’m registered" only once you are.

On the day it changes, open Settings, then "Tax and currency", and set "Default rate" to 20%. Put your VAT number in "Registration or licence number" in your business details and it prints at the foot of every invoice from then on. Invoices you have already sent keep the rate they were written with.

What a VAT invoice has to show beyond the number is HMRC's list of eleven items, and the VAT invoice guide goes through it line by line, with the three places the app falls short of it.

Asked about the VAT threshold