VAT Threshold 2026
The UK VAT registration threshold for 2026/27 is £90,000 in taxable turnover. You must register within 30 days of crossing it on a rolling 12-month basis, or immediately if you expect to exceed £90,000 in the next 30 days. The deregistration threshold is £88,000.
What Is the VAT Registration Threshold in the UK for 2026?
The VAT registration threshold for 2026/27 is £90,000 in taxable turnover. This has been unchanged since 1 April 2024, when it was raised from £85,000. Once your taxable turnover exceeds £90,000 in any rolling 12-month period, registration is compulsory — there is no grace period beyond the 30-day notification window. The UK threshold is the highest in the OECD (joint with Switzerland), meaning the majority of small businesses never need to register.
The VAT deregistration threshold — the level at which you can apply to cancel your registration — is £88,000. If you registered because you crossed £90,000 but your turnover has since fallen below £88,000, you can apply to deregister. You cannot deregister just because your turnover dips below £90,000; it must fall below the lower deregistration threshold.
2026/27 VAT Thresholds at a Glance
| Threshold | Amount | What Triggers It |
|---|---|---|
| Registration | £90,000 | Taxable turnover exceeds this in any rolling 12-month period |
| Deregistration | £88,000 | Taxable turnover falls below this, allowing cancellation |
| Flat Rate Scheme (join) | Up to £150,000 | Must leave if total business income exceeds £230,000 |
Source: GOV.UK — VAT thresholds. Thresholds last updated 1 April 2024.
VAT Registration Threshold
Must register if turnover exceeds this in rolling 12 months
VAT Standard Rate
Standard VAT rate in UK
What Counts as Taxable Turnover? The Agency Twist
Taxable turnover is the total value of all standard-rated, reduced-rated, and zero-rated supplies you make — everything you sell that is not VAT-exempt or out of scope. For a typical UK marketing or creative agency, that is essentially all your fee income. Exempt income (such as financial services or certain educational services) does not count towards the threshold, but almost no agency income qualifies as exempt.
Where agencies trip up is with pass-through media spend. If your agency buys Google Ads, Meta advertising, or programmatic display as principal — you are the contracting party with the platform, and you resell the media to your client — the full value of that spend counts as your taxable turnover. An agency billing £75,000 in management fees but passing through £20,000 in Google Ads spend as principal has £95,000 in taxable turnover and is already above the VAT threshold.
If instead you act as agent — your client has the direct relationship with the ad platform, you facilitate the purchase on their behalf — then only your commission or management fee counts. The principal vs agent distinction is the single most common reason agencies find themselves unexpectedly VAT-registered. Getting this wrong can mean a large backdated VAT liability. For the accounting treatment of media spend in more detail, read our guide to ad spend reconciliation for agencies.
Common Taxable Turnover Mistakes for Agencies
- Counting only invoiced fees and forgetting client media spend billed as principal
- Assuming turnover resets at the end of the tax year (it is always a rolling 12 months)
- Not monitoring turnover monthly — crossing the threshold can happen in any month
- Including exempt income in the threshold calculation (it does not count)
Two Tests That Trigger Compulsory VAT Registration
HMRC uses two separate tests to determine when you must register. Crossing either one triggers a registration obligation.
Test 1 — The historical test: At the end of every calendar month, look back at the previous 12 months. If your taxable turnover for that 12-month period has exceeded £90,000, you have 30 days from the end of that month to notify HMRC and register. Your effective VAT registration date is the first day of the second month after you crossed the threshold.
Test 2 — The future test: If at any point you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone (for example, you have just signed a large project contract), you must notify HMRC immediately — and your registration takes effect from the start of that 30-day period. This catches agencies that land a large contract that would push them well above the threshold before month-end.
Example: The Rolling 12-Month Test in Practice
An agency has the following monthly fee turnover (acting as agent on all media):
- May 2025 – March 2026: £6,500/month (£71,500 cumulative)
- April 2026: £20,000 (large project launch)
At 30 April 2026, the rolling 12-month total is £91,500 — above £90,000. The agency must notify HMRC by 30 May 2026 and registers from 1 June 2026. All sales from 1 June must include VAT.
The full rules are on GOV.UK — Register for VAT. Check your rolling total monthly. The cost of late registration — penalties plus backdated VAT on all sales — is far higher than the cost of proactive monitoring.
What Happens When You Cross the £90,000 Threshold
Once you cross the threshold: (1) notify HMRC within 30 days via your Government Gateway account; (2) register online; (3) receive your VAT registration certificate (VAT4) and VAT number — typically within 30 working days; (4) start charging VAT on all taxable sales from your effective registration date; and (5) submit quarterly VAT returns under Making Tax Digital for VAT.
All VAT-registered businesses must keep digital records and submit VAT returns using MTD-compatible software from their very first return, whether they registered voluntarily or compulsorily. For background on how iXBRL and digital filing requirements have evolved in 2026, read our guide to iXBRL accounts filing 2026.
Late Registration Penalties
If you register late, HMRC charges a penalty as a percentage of the net VAT owed from the date you should have registered. Rates: 5% if up to 9 months late; 10% for 9–18 months; 15% for more than 18 months. Minimum penalty: £50. On top of this, you must account for VAT on all sales back to your mandatory registration date, even if you did not charge clients VAT at the time.
Should Your Agency Register for VAT Voluntarily?
Voluntary registration is available at any turnover level, and for many B2B agencies it is worth doing before hitting the £90,000 threshold. The decision comes down to three factors.
Your client base: If all your clients are VAT-registered businesses, they will reclaim the VAT you charge — it is cost-neutral for them. You then recover VAT on all your purchases: software subscriptions, freelancer invoices (where the freelancer is VAT-registered), equipment, and professional fees. For a typical agency spending £15,000–£25,000 per year on VATable inputs, voluntary registration recovers £3,000–£5,000 per year in input VAT.
Your growth trajectory: If you are at £70,000–£85,000 and growing, registering voluntarily now gives you time to adjust your pricing, update invoicing templates, configure your accounting software for MTD VAT, and brief clients — rather than scrambling when you cross the threshold mid-project. You can also use our director salary calculator to model how the VAT registration timing interacts with your overall take-home pay for the year.
Consumer-facing work: If any significant portion of your clients are consumers (individuals who cannot reclaim VAT), adding 20% VAT to your prices either reduces your margin or loses you work. In this case, staying below the threshold for as long as possible is usually the right call — unless your VATable input costs are high enough to make recovery worthwhile regardless.
Simple Decision Framework
- Estimate your annual input VAT: all VATable purchases × 20%
- Estimate the cost of VAT on clients: what proportion cannot reclaim, and what would they do?
- If input VAT recovered > VAT cost to clients: register voluntarily. Otherwise: wait until compulsory.
VAT Flat Rate Scheme vs Standard Rate for Agencies
The VAT Flat Rate Scheme (FRS) lets you pay HMRC a fixed percentage of your gross (VAT-inclusive) turnover instead of tracking input and output VAT on every transaction. For marketing and advertising agencies, the published flat rate is 11% (10% in the first year of VAT registration). However, most agencies will not qualify to use this rate.
Since 2017, the limited cost trader rule means that if your VAT-inclusive purchases of goods (not services) are less than 2% of your VAT-inclusive turnover, or less than £1,000 per year, you must use a flat rate of 16.5% regardless of sector. For most service agencies, spending on goods (physical materials) is minimal. Platform costs (Google Ads, Meta) count as services under the FRS, not goods — so they do not help you escape the limited cost trader test. Running the numbers typically shows the standard scheme is better for agencies.
| Scheme | How VAT Is Calculated | Best For |
|---|---|---|
| Standard Rate | Output VAT minus input VAT | Agencies with significant VATable inputs (contractors, software) |
| Flat Rate (11%) | 11% of gross turnover | Agencies with high goods spend and low service costs — rare |
| Flat Rate (16.5% limited cost) | 16.5% of gross turnover | Applies to most service agencies — almost never better than standard |
| Cash Accounting | Standard rate; VAT paid/reclaimed when cash received/paid | Agencies with slow-paying clients who want cash flow protection |
As part of your annual tax review, check whether your VAT scheme is still the most efficient option. Our annual tax review checklist for directors includes a standing VAT scheme review item with a worked example for switching between schemes.
Practical Steps Before and After VAT Registration
- Track your rolling 12-month turnover monthly. Your accounting software should flag this automatically. Set a calendar reminder for the last working day of each month to check your running total. Most agency founders who miss the VAT threshold cross it in a busy project month and only notice at year-end.
- Clarify your media spend treatment now. Determine whether you are acting as principal or agent on all client media spend. The determining factor is who bears the economic risk if the media does not perform — and who the contract with the platform is between.
- Get MTD-compatible software in place before registration. You cannot file VAT returns manually after registering. Xero, FreeAgent, and QuickBooks are all MTD-compatible. Set it up before your first return is due.
- Update your pricing and contract templates. Once registered, invoices must show your VAT number, VAT rate, and VAT amount separately. Update templates before your registration date.
- Review your overall tax structure at the same time. Becoming VAT-registered is a good trigger to review how you pay yourself from the company. Use our director salary calculator to confirm your take-home is still optimised once VAT changes your cash flow.
How Alto Accounting Can Help
Alto Accounting specialises in UK agencies, which means we understand how media spend treatment, retainer billing, and project revenue interact with the VAT threshold. We review VAT registration timing, scheme selection, and quarterly returns for agency clients at every stage — from first approaching £90,000 to managing more complex partial exemption positions.
Book a free consultation to discuss your VAT position and how it fits into your broader tax planning.
Frequently Asked Questions
What is the VAT registration threshold in the UK for 2026?
The VAT registration threshold for 2026/27 is £90,000 in taxable turnover. This has been unchanged since 1 April 2024, when it increased from £85,000. You must register if your taxable turnover exceeds £90,000 in any rolling 12-month period, or if you reasonably expect to exceed £90,000 within the next 30 days alone. The deregistration threshold is £88,000.
How is taxable turnover calculated for a marketing or creative agency?
Taxable turnover includes all standard-rated and zero-rated supplies — essentially all your fee income from clients. The critical question for agencies passing through media spend (Google Ads, Meta, LinkedIn) is whether you are acting as principal or agent. If you buy and resell media as principal, the full media cost counts as your taxable turnover. If you purchase it as an agent on behalf of the client (client contract is with the platform), only your commission counts. This distinction can make the difference between being above or below the £90,000 threshold for agencies billing fees of £70k–£85k but passing through £20k–£40k in client media spend.
Can I register for VAT voluntarily if my turnover is below £90,000?
Yes. You can register for VAT voluntarily at any time, even with turnover well below £90,000. This makes sense if: your clients are VAT-registered businesses who can reclaim the VAT you charge; you have significant input VAT to recover on purchases (software, freelancers, equipment); or your turnover is approaching £90,000 and you want time to adjust systems before compulsory registration. It rarely makes sense if you mainly serve consumers or very small businesses who cannot recover VAT.
What happens if I miss the VAT registration deadline?
If you do not register within 30 days of crossing the £90,000 threshold, HMRC will charge a late registration penalty. The penalty is a percentage of the net VAT due from the date you should have registered to the date HMRC found out (or you registered). Rates are 5% if up to 9 months late, 10% if 9 to 18 months late, and 15% if more than 18 months late, subject to a minimum of £50. HMRC may also require you to account for VAT on all sales from your mandatory registration date, even if you did not charge VAT to clients at the time.
Is the VAT Flat Rate Scheme worth it for a marketing agency?
For most marketing agencies, the Flat Rate Scheme (FRS) is not beneficial because of the limited cost trader rule. If your VAT-inclusive purchases of goods are less than 2% of your VAT-inclusive turnover, or less than £1,000 per year, you are a limited cost trader and must use a flat rate of 16.5% — higher than what most agencies would pay under the standard scheme. The standard marketing sector flat rate is 11%, but few agencies qualify to use it because media spend (bought from platforms) counts as services, not goods, for FRS purposes.