Do I need to register for VAT? The £90,000 question.
The short answer: You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12-month period, or if you expect to pass £90,000 in the next 30 days alone. It’s turnover, not profit. Register within 30 days of the month you crossed it.
There’s a point in every growing trade business where someone says the word VAT and the room goes quiet.
Usually it’s an accountant, and usually it’s followed by “you might want to think about slowing down in March”, which is a mad thing to say to someone who’s finally busy.
So here’s the whole thing laid out — when you have to register, when you might want to anyway, the scheme that sounds brilliant and usually isn’t, and the two rules about construction VAT that half the trade blogs on the internet have got wrong.
The threshold, and how it’s actually tested
£90,000. That’s the VAT registration threshold, and it’s what GOV.UK states as of August 2026. If you drop back down later, you can ask to deregister once your turnover falls below £88,000.
But the threshold isn’t tested once a year. It’s tested two ways, constantly, and the second one catches people out badly.
The backward look — rolling 12 months
At the end of every month, add up your taxable turnover for the previous twelve months. Not the tax year. Not your accounting year. A rolling twelve months, checked monthly.
Go over £90,000 and you must register within 30 days of the end of that month. Your registration takes effect from the first day of the second month after you crossed it.
So: cross the line in September, register by the end of October, and you’re VAT-registered from 1 November. That lag is genuinely useful — it gives you a few weeks to tell customers and reprice.
The forward look — the next 30 days on its own
This is the one nobody sees coming. If at any moment you expect your taxable turnover to exceed £90,000 in the next 30 days by itself, you must register by the end of that 30-day period — and registration takes effect from the date you realised, not from when the money arrives.
Read that again if you’ve just been offered a big commercial job. One contract can do it. And there’s no helpful lag on this test — it bites from the day you knew.
Three things people get wrong about the threshold: it’s turnover, not profit — the whole invoice, not what you kept. Zero-rated work counts towards it even though you charge no VAT on it. And it’s a rolling twelve months, so a monster summer can pull you over even if your calendar year looks fine.
What happens if you register late
Here’s the correction worth the price of admission, because a lot of trade advice online is a decade and a half out of date.
You’ll find sites quoting penalties of 5%, 10% or 15% of the VAT owed with a £50 minimum. Those bands come from VAT Notice 700/41, and that notice says plainly that they apply only to registration obligations that arose before 1 April 2010. They are not the current rules.
The regime that actually applies is the failure-to-notify penalty, which is behaviour-based and worked out as a percentage of the tax you should have paid:
| Behaviour | You come forward | HMRC finds you |
|---|---|---|
| Non-deliberate, within 12 months | 0% – 30% | 10% – 30% |
| Non-deliberate, 12 months or more | 10% – 30% | 20% – 30% |
| Deliberate | 20% – 70% | 35% – 70% |
| Deliberate and concealed | 30% – 100% | 50% – 100% |
Note the top-left cell. Own up before HMRC asks, within twelve months, and a genuine mistake can carry no penalty at all. Wait to be found and the floor rises.
And here’s the bit that actually costs more than the penalty: you still owe the VAT on everything you sold since your effective registration date — even though you never charged it to those customers. Unless they agree to pay it retrospectively, and domestic customers won’t, that VAT comes straight out of your own margin. And because HMRC treats what you already took as VAT-inclusive, it’s one-sixth of it — on £30,000 of missed sales, £5,000 gone before any penalty.
Should you register voluntarily?
You can register below £90,000 if you want to. Whether you should depends almost entirely on one question: can your customers reclaim VAT?
| Registering probably helps if… | Registering probably hurts if… |
|---|---|
| Most of your work is for VAT-registered businesses — main contractors, commercial fit-outs, landlords with VAT-registered businesses | Most of your work is for homeowners, who can’t reclaim a penny of it |
| You’re buying a van, tools or plant and want the VAT back | Your work is mostly labour with little materials spend, so there’s little input VAT to recover |
| You do new-build housing, which is zero-rated — you charge 0% but still reclaim on materials | You compete directly against unregistered sole traders on domestic price |
| You subcontract to VAT-registered contractors under the reverse charge | You’d rather not take on quarterly filing and MTD for VAT obligations |
The strongest case for voluntary registration in the trades is the zero-rated one. On new-build dwellings you charge your customer nothing in VAT but you reclaim the VAT on everything you buy. That’s a structural repayment position — HMRC sends you money most quarters. If that’s your work and you’re not registered, you’re leaving cash on the table.
The worst case is the domestic one. Registering means either putting your prices up 20% overnight against unregistered rivals, or absorbing it. Neither is fun.
The Flat Rate Scheme — the one that sounds better than it is
The Flat Rate Scheme is still going in 2026. You charge customers the normal 20%, but instead of accounting for every bit of input and output VAT you hand HMRC a fixed percentage of your VAT-inclusive turnover and keep the difference. Simpler books, and sometimes a bit of profit.
You can join if you expect VAT-taxable turnover of £150,000 or less excluding VAT. You must leave once total income tops £230,000 including VAT — but unlike the registration threshold, that isn’t a rolling monthly test. It’s checked on the anniversary of joining, or immediately if you expect to pass £230,000 in the next 30 days alone.
The rates that matter to trades:
| Category | Flat rate |
|---|---|
| General building or construction services | 9.5% |
| Labour-only building or construction services | 14.5% |
| Any other activity not listed elsewhere | 12% |
| Limited cost business | 16.5% |
There is no rate for “electrician”, “plumber”, “plasterer” or “roofer”. None. If a website has told you otherwise, it made it up. You self-classify into one of the categories above, and the deciding test is materials: if the materials you supply are worth less than 10% of your turnover for those services, you’re labour-only at 14.5%. More than 10% and you’re general building at 9.5%.
You also get 1% off your rate for the first year of VAT registration — unless you registered more than 12 months after you were required to, in which case you don’t.
The limited cost trap — read this before you join
This is where the Flat Rate Scheme quietly turns on trades. You’re a “limited cost business”, paying 16.5%, if your spend on relevant goods is either under 2% of your flat rate turnover, or over 2% but less than £1,000 a year — and on a quarterly return that £1,000 is pro-rated down to £250, which is a far easier bar to fall under than it sounds.
And the definition of “relevant goods” excludes almost everything a trade spends money on:
- Any services at all — so subcontractor labour you pay for doesn’t count
- Capital expenditure goods of any value — so buying a van or a big tool doesn’t help you pass
- Vehicle costs including fuel, unless you’re in the transport sector
- Food or drink for you or your staff
- Goods for resale or hire if that isn’t ordinarily your business
Worse, the test applies every VAT period, not once. One labour-heavy quarter and you’re on 16.5% for that quarter alone.
At 16.5% of the VAT-inclusive total, you’re handing over roughly 19.8% of the net sale — while still being barred from reclaiming input VAT. For a labour-only trade the Flat Rate Scheme is usually worse than just doing it properly. Do the sum before you sign up, not after.
Cash accounting — the scheme trades actually want
Far less talked about, far more useful if contractors pay you late.
Under the Cash Accounting Scheme you account for VAT when the money moves, not when the invoice is raised. You pay VAT on sales when your customer actually pays you, and reclaim on purchases when you’ve actually paid your supplier. You can join with taxable turnover of £1.35 million or less and must leave above £1.6 million.
Why it matters in construction: without it, you hand HMRC the VAT on a £12,000 invoice at the quarter end whether or not the main contractor has paid you. With it, you don’t. It also gives you automatic bad debt relief if they never pay at all.
One catch: you can’t use cash accounting and the Flat Rate Scheme together.
The Annual Accounting Scheme, meanwhile, usually suits trades badly — you file one return a year and make fixed advance payments, and GOV.UK itself warns it’s poor for anyone who regularly reclaims VAT, because you’d wait up to twelve months for a refund.
The two construction VAT rules everyone gets wrong
1. Energy-saving materials are zero-rated, not 5%
Insulation, solar panels, heat pumps, draught stripping, central heating and hot water controls, batteries for storing electricity, smart diverters — installed in residential accommodation, these are at 0% VAT, not the 5% you’ll read almost everywhere.
The zero rate has run since 1 May 2023 and applies across Great Britain and Northern Ireland on the same terms. Batteries, water source heat pumps and smart diverters were added from 1 February 2024.
Put a note in your diary: it reverts to 5% on 1 April 2027. If you’re quoting long-lead heat pump or solar work that straddles that date, that’s a real number on a real invoice.
Careful though — GOV.UK’s own summary page for builders still lists energy-saving products under 5%. The detailed notice and the current rates index both say 0%. Go with the notice.
2. Zero-rating is for new build, not for doing up an old house
Constructing a new dwelling is zero-rated. Extending, altering, repairing or renovating an existing dwelling is standard-rated at 20%. That’s the single most common misunderstanding in the trade, and it goes wrong in expensive directions.
The 5% reduced rate sits in between and is narrower than people think. It covers residential conversions where the number of dwellings actually changes, conversions to multiple-occupancy dwellings, and renovation of a dwelling that’s been empty for at least two years before work starts.
Also worth knowing: professional services — architects, surveyors, consultants — are always standard-rated even on a zero-rated project. And white goods and carpets stay at 20% even when they’re going into a zero-rated new build.
The reverse charge, if you subcontract
If you’re a VAT-registered subcontractor working for a VAT-registered contractor on work that falls under CIS, you almost certainly don’t charge them VAT at all. The domestic reverse charge has applied since 1 March 2021.
Instead you note on the invoice that the reverse charge applies and that the customer must account for the VAT — wording like “VAT Act 1994 Section 55A applies” or “Customer to pay the VAT to HMRC” — show the rate or amount for information, and leave it out of the total you’re charging.
It doesn’t apply when your customer is an end user or an intermediary supplier and has told you so in writing, when the work is zero-rated, or when your customer isn’t VAT-registered — which covers every homeowner you work for.
Two consequences worth planning for. First, cash flow: you’re no longer holding contractors’ VAT between collecting it and paying it over, and you may end up in permanent repayment position — in which case ask about monthly returns rather than quarterly. Second, the Flat Rate Scheme stops making sense almost entirely, because reverse charge sales come out of your flat rate turnover while the scheme still blocks you from reclaiming input VAT.
Once you’re registered: MTD for VAT
Every VAT-registered business is in Making Tax Digital for VAT, whatever the turnover — including if you registered voluntarily below £90,000. It’s been universal since April 2022 and you don’t sign up separately.
It means digital record-keeping and returns filed through compatible software. If you use more than one bit of software, the data has to move between them by digital link — copying and pasting or retyping doesn’t count.
And keep the two Making Tax Digitals straight, because they’re separate things. MTD for VAT is triggered by being VAT-registered. MTD for Income Tax is triggered by your qualifying income — over £50,000 from April 2026. A trade turning over £60,000 is in MTD for Income Tax and nowhere near VAT registration.
What has to be on a VAT invoice
Once registered, your invoices need: your name and address, your VAT registration number, the customer’s name and address, an invoice number, the invoice date, the date of supply, a description of the work, the price excluding VAT, the VAT rate and the VAT amount.
That’s the core of it rather than the whole of it — line quantities and unit prices belong on there too. Invoices where the total is £250 or less including VAT can be simplified. A VAT invoice must be provided within 30 days of the supply. Keep your VAT records for at least six years. And you can’t reclaim VAT using a pro-forma, a statement or a delivery note — you need the actual invoice.
This is all a lot easier when your books are current
Notice how much of the above depends on knowing your rolling twelve-month turnover at any given moment. The backward look. The forward look. Whether you’re a limited cost business this quarter. Whether cash accounting would help.
None of that works from a carrier bag of receipts and a spreadsheet last touched in March.
That’s the job The Back Office takes off you. Quotes, invoices and receipts go through WhatsApp, the app already open in your hand. Voice note from the van and the invoice is logged with the VAT handled. Photo of a receipt at the merchants and it’s filed and categorised. So your rolling turnover is a thing you can actually look at, rather than something you find out about from your accountant in October.
Straight with you: we’re not accountants and we don’t file your VAT returns. What we do is keep your records tidy and digital all year so you and your accountant can see where you stand — on VAT and on Making Tax Digital both. £29 a month, flat. In pounds.
VAT for tradespeople: quick FAQ
What is the VAT registration threshold in 2026?
£90,000 of taxable turnover in a rolling 12-month period. You can apply to deregister if turnover falls below £88,000.
Is the VAT threshold based on profit or turnover?
Turnover — the total you invoiced before expenses. Zero-rated work counts towards it too.
How long do I have to register?
Within 30 days of the end of the month you went over. Registration takes effect from the first day of the second month after crossing. Under the forward-look test it’s immediate, from the date you realised.
What’s the penalty for registering late?
A failure-to-notify penalty based on behaviour — from 0% for an unprompted non-deliberate disclosure within 12 months, up to 100% for deliberate and concealed. The old 5/10/15% bands you’ll see quoted online only apply to obligations arising before April 2010. Bigger than the penalty is the VAT itself: you owe it on past sales you never charged VAT on.
Should I register voluntarily?
It usually helps if your customers are VAT-registered businesses or your work is zero-rated new build, because you reclaim input VAT either way. It usually hurts if you work for homeowners who can’t reclaim, since you either raise prices 20% or absorb it.
Is the Flat Rate Scheme worth it for a tradesperson?
Often not. There’s no trade-specific rate — you’re general building at 9.5%, labour-only at 14.5%, or other at 12%. And if your goods spend is thin you’ll be pushed to 16.5% as a limited cost business, which for most labour-heavy trades is worse than standard VAT accounting.
What VAT rate applies to an extension?
20%. Extending, altering or repairing an existing dwelling is standard-rated. Zero-rating is for constructing new dwellings.
What VAT do I charge on insulation or a heat pump?
0% until 31 March 2027, when it reverts to 5%. Energy-saving materials installed in residential accommodation are currently zero-rated, not 5% — despite what a lot of older guidance says.
Do I charge VAT to a contractor?
Usually not. If you’re both VAT-registered and the work falls under CIS, the domestic reverse charge applies — you note it on the invoice and the contractor accounts for the VAT.
Do I have to use software once I’m VAT-registered?
Yes. Every VAT-registered business is in MTD for VAT regardless of turnover, which means digital records and returns filed through compatible software.
Crossing £90,000 isn’t a punishment. It means the business worked. Just don’t let it arrive as a surprise — that’s the only version of this that actually costs you money.
Where these figures come from
Every number in this guide is linked to its source below, with the date we checked it. Rules and prices change — if you are reading this a long way from the date at the top, check the originals.
- £90,000 registration and £88,000 deregistration thresholds, backward and forward look tests, deadlines and effective dates — GOV.UK, Register for VAT (page updated 15 July 2026): gov.uk/register-for-vat · gov.uk/how-vat-works/vat-thresholds
- Failure-to-notify penalty bands — GOV.UK, Compliance checks: penalties for failure to notify (CC/FS11): gov.uk/government/publications/compliance-checks-penalties-for-failure-to-notify-ccfs11
- The 5/10/15% bands apply only to obligations arising before 1 April 2010 — GOV.UK, Late registration penalty (VAT Notice 700/41): gov.uk/guidance/late-registration-penalty-for-vat-notice-70041
- Flat Rate Scheme thresholds, trade percentages, 1% first-year discount, limited cost business rules and relevant goods exclusions — GOV.UK, VAT Flat Rate Scheme and VAT Notice 733 (updated 18 December 2025): gov.uk/vat-flat-rate-scheme/how-much-you-pay · gov.uk/guidance/flat-rate-scheme-for-small-businesses-vat-notice-733--2
- Cash Accounting and Annual Accounting thresholds and mechanics — GOV.UK: gov.uk/vat-cash-accounting-scheme · gov.uk/vat-annual-accounting-scheme
- Energy-saving materials zero-rated 1 May 2023 to 31 March 2027 — GOV.UK, VAT on energy-saving materials and heating equipment (Notice 708/6): gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086
- Zero-rating for new dwellings, 5% conversions and 2-year empty property renovations, standard rating of repairs and professional services — GOV.UK, Buildings and construction (VAT Notice 708) and Rates of VAT on different goods and services (updated 10 July 2026)
- Domestic reverse charge scope, end user notification, invoice wording, cash flow and Flat Rate Scheme interaction — GOV.UK, VAT domestic reverse charge for building and construction services and VAT reverse charge technical guide (updated 18 September 2024)
- MTD for VAT universal since April 2022 and digital links requirement — GOV.UK, Making Tax Digital for VAT: gov.uk/guidance/making-tax-digital-for-vat
- VAT invoice contents, £250 simplified invoice limit, 14-day issue rule, 6-year record retention — GOV.UK, VAT guide (Notice 700, updated 25 June 2026): gov.uk/guidance/vat-guide-notice-700
All GOV.UK pages checked 14 August 2026.