VAT Registration and Making Tax Digital: A Sole Trader's Guide

If your business turnover is approaching £90,000, VAT registration stops being optional — and once registered, Making Tax Digital rules mean paper records and manual submissions are no longer an option either. Here's what sole traders and small businesses need to know before crossing the line.

The threshold

The VAT registration threshold for 2026/27 is £90,000 in taxable turnover, unchanged since April 2024 and confirmed to stay at this level until at least April 2027. This is measured on a rolling 12-month basis, not the tax year or calendar year — so it's your turnover in any trailing 12 months that matters, not a fixed annual period. You must register within 30 days of crossing the threshold, with no grace period beyond that window, according to THP's 2026 VAT guide.

You can also deregister if your turnover falls below £88,000, though this needs proactive action — HMRC won't do it automatically.

Worth knowing: at £90,000, the UK has the highest VAT registration threshold in the OECD, tied with Switzerland. That means most UK small businesses never need to register at all — this only affects the minority that grow past a fairly high bar.

What Making Tax Digital requires

Once VAT-registered, Making Tax Digital for VAT is mandatory for every business, regardless of size. You must keep digital records and submit returns using MTD-compatible software — direct submission from a spreadsheet to HMRC isn't allowed, though you can use a spreadsheet for record-keeping if you connect it to bridging software that handles the actual submission.

Quarterly VAT returns are the norm, submitted digitally every return, not just the first one.

Checklist: registering for VAT and getting MTD-ready

1. Track your rolling 12-month turnover monthly, not just at year-end, so you don't miss the 30-day registration window
2. Register on GOV.UK as soon as you're confident you'll exceed £90,000 in the coming 12 months, or once you have exceeded it
3. Choose MTD-compatible software — options range from full accounting packages (Xero, QuickBooks, FreeAgent) to bridging software that connects a spreadsheet to HMRC's system
4. Set up digital record-keeping from day one of registration — retrospective paper records won't satisfy MTD requirements
5. Decide your VAT scheme — standard VAT accounting, the Flat Rate Scheme, or Cash Accounting Scheme all have different pros and cons depending on your margins and cash flow
6. Factor VAT into your pricing before you're forced to absorb it — registering means adding 20% to most sales unless you adjust prices
7. Diarise your quarterly return deadlines — usually one month and seven days after the end of each VAT quarter
8. Consider deregistering if turnover later falls below £88,000, if VAT registration is no longer beneficial for your business

International comparison

The EU's VAT thresholds vary by member state but are typically far lower than the UK's — many EU countries set thresholds in the €25,000–€50,000 range, meaning far more small businesses there are VAT-registered than in the UK. Australia's GST registration threshold is AUD $75,000 (about £37,000), again considerably lower than the UK's £90,000. The US has no federal VAT or GST equivalent at all — sales tax is set state-by-state, with thresholds and rates varying widely, making direct comparison difficult.

Key Numbers

• £90,000 — UK VAT registration threshold for 2026/27
• £88,000 — turnover level below which you may deregister
• 30 days — window to register once you've crossed the threshold
• AUD $75,000 — Australia's GST registration threshold for comparison

Sources

• AVASK: UK VAT Threshold 2026 — registration limits, changes, global comparison
• THP: UK VAT threshold 2026 — complete guide for growing businesses
• Xero: VAT registration thresholds
• GOV.UK: VAT registration

Educational content only — not financial advice.