VAT Thresholds & Limits Explained

Find out how the VAT threshold works for UK businesses, the VAT limits for different VAT schemes and checking a business’ turnover for VAT purposes, as well as what happens when it crosses the thresholds set by HMRC.

Updated 24 November 2021

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

1. The VAT Threshold for 2021

The VAT threshold for the 2021/2022 tax year is £85,000. This means that once a business’ VAT taxable turnover reaches this limit they must register for VAT if:

  • Looking back at the previous 12 months business taxable turnover will exceed the VAT limit (this is based on a 12 month rolling basis, not a fixed time period and is known as a ‘late registration’);
  • Looking forward business’ taxable turnover is expected to exceed £85,000 VAT limit in the next 30 days.

1.2 Examples of Exceeding the VAT Registration Threshold

Molly has been in business for several years and her business is growing.  She realises that she has exceeded the VAT registration limit at the end of October when she looks back at her total turnover for the previous 12 months from 1 November to 31 October. Molly must notify HMRC and register for VAT by 30 November. Molly will be registered for VAT from 1 December and she must begin issuing VAT invoices from this date also.

Carlos normally has a VAT taxable income from being self-employed of approximately £50,000. On 21 April 2021, he wins a large contract of £50,000 to be delivered and billed in the next 30 days, meaning he exceeds the VAT limits. He needs to register for VAT by 21 May 2021 and his VAT tax point to begin charging his customers VAT is 21 April 2021. Carlos must begin charging VAT immediately even though the contract doesn’t begin until May because he knows that he is set to exceed the VAT registration limit in the next 30 days.

2. VAT Registration Limits

The VAT business turnover threshold determines when a UK business must register for VAT with HMRC. However, there are other thresholds and limits are in place for registered businesses whose business VAT taxable turnover may have fallen below the threshold or have chosen to opt into any of the various VAT schemes that they feel it will bring benefit in the form of cash flow, reduced VAT bills and administration. Here is a summary of the current VAT limits:

 2021/20222020/2021
VAT Registration£85,000£85,000
VAT Deregistration£83,000£83,000
Cash and annual accounting scheme turnover limit£1.35m£1.35m
Cash or annual accounting deregistration
turnover limit
£1.6m £1.6m
Flat rate schemes turnover limit£150,000£150,000
Flat rate schemes deregistration turnover limit £230,000£230,000
VAT MOSS£8,818£8,818

3. VAT Registration and the Self Employed

The VAT registrations thresholds apply to all businesses, regardless of their business structure so that includes the self-employed. For those running self-employed (sole trader) businesses, they will need to monitor their VAT taxable turnover in the same way as a registered business. Often, self-employed businesses consider forming a Limited Company by the time their turnover reaches this level so they can enjoy the tax benefits of incorporation.

4. What Happens Once You Go Over the VAT Limit?

Once a business exceeds VAT registration threshold, they will be required to register for VAT. That means they become responsible for charging VAT on sales to their customers at the applicable rate for their business as well as being able to claim back VAT on expenses that they have paid. Once registered, businesses need to report these numbers to HMRC usually on a quarterly basis (although monthly and annual options are available), along with paying any VAT owed.

Confused by VAT? Read this guide to find out What VAT is and How it Works

6. Does the VAT Registration Threshold Include VAT?

When working out whether you have gone over the registration threshold, you’ll need to exclude VAT from your business turnover. You only include sales that would be subject to standard and zero-rated VAT.

7. How to Apply for a VAT Exception

A business can avoid registering for VAT if their VAT business turnover temporarily goes over the VAT threshold by applying for a VAT exception from HMRC and providing evidence that the business will not exceed the VAT limit in the next 12 months.

8. VAT Threshold History

The VAT threshold is set each year as part of the UK Budget. Between 2017 to 2021 we have not seen any changes to the VAT thresholds and limits, but it has changed in previous years and may do so again in the future. Here is a summary of the VAT threshold History:

PeriodToVAT Registration Threshold
1 April 202131 March 2022 £85,000
1 April 202031 March 2021 £85,000
1 April 201931 March 2020 £85,000
1 April 201831 March 2019 £85,000
1 April 201731 March 2018 £85,000
1 April 201631 March 2017 £83,000
1 April 201531 March 2016 £82,000
1 April 201431 March 2015 £81,000
1 April 201331 March 2014 £79,000
1 April 201231 March 2013 £77,000
1 April 201131 March 2012 £73,000
1 April 201031 March 2011 £70,000
1 April 200931 March 2010 £68,000
1 April 200831 March 2009 £67,000
1 April 200731 March 2008 £64,000
1 April 200631 March 2007 £61,000
1 April 200531 March 2006 £60,000
1 April 200431 March 2005 £58,000
1 April 200331 March 2004 £56,000
1 April 200231 March 2003 £55,000
1 April 200131 March 2002 £54,000
1 April 200031 March 2001 £52,000

9. VAT Deregistration

The VAT deregistration limit from 1 April 2017 is £83,000. That means you can deregister for VAT once the taxable turnover of your business falls below £83,000. If you are experiencing a temporary drop in turnover below the deregistration limit then you may not want to cancel otherwise you’ll need to register again because the process is irreversible.

Taxes are changing! From April 2024 sole traders will need to report their earnings and pay tax on a quarterly basis. This is known as Making Tax Digital, which you can read more about in this guide to help you get prepared.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.