Under £90,000 of turnover, VAT registration is a choice. Whether it is a good one comes down to who your customers are and what you spend money on.

The case for registering early

You reclaim the VAT on your business purchases. A tradesperson spending £12,000 a year on materials and tools, all standard rated, gets £2,000 back. That is real money against real admin.

If your customers are businesses, most of them reclaim the VAT you charge, so your prices effectively stay the same for them. You gain the input VAT back and lose nothing at the till.

Some people register for appearance. A VAT number can make a one-person operation look established to bigger clients. It is a weak reason on its own, but it rides along happily with the first two.

The case against

If you sell to the public, your customers cannot reclaim VAT. You either raise your prices by 20% or absorb the VAT yourself, which is the same as cutting your prices by a sixth. On tight margins that can wipe out the input VAT you reclaim several times over.

Then there is the admin. VAT-registered businesses must keep digital records and file returns through Making Tax Digital-compatible software, normally every quarter. Miss the rhythm and penalties follow.

Worked example. A decorator turning over £60,000, selling to homeowners, spending £10,000 a year on standard-rated materials. Registering voluntarily reclaims £2,000 of input VAT. But if she cannot raise her prices, the £60,000 she charges now has VAT inside it: £10,000 owed to HMRC. Net position: £8,000 a year worse off. If her clients were letting agents and landlords who reclaim VAT, the same numbers leave her £2,000 better off.

A middle path for service businesses

The Flat Rate Scheme can soften the admin for smaller VAT-registered businesses: you pay a fixed percentage of your turnover instead of tracking every purchase. It has its own traps, including a 16.5% rate for “limited cost” businesses, so read the numbers before leaping.

If you change your mind

Registration is not a life sentence. If your taxable turnover falls below £88,000 you can ask HMRC to cancel, and a voluntary registrant can deregister the same way.

Sources

All pages checked 20 October 2026.

• Register for VAT: https://www.gov.uk/vat-registration
• Cancel your VAT registration: https://www.gov.uk/register-for-vat/cancel-your-registration
• VAT Flat Rate Scheme: https://www.gov.uk/vat-flat-rate-scheme
• How VAT works: https://www.gov.uk/how-vat-works

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