VAT for Trades: The £90k Threshold Explained

VAT for Trades: When to Register and the £90k Threshold

You must register for VAT once your taxable turnover goes over £90,000 in any rolling 12-month period — not your profit, your turnover. That’s the single figure every growing trade needs to watch. Cross it and you’re legally required to register, add VAT to your invoices and send returns to HMRC. Below it, registering is optional, and whether it helps or hurts you depends almost entirely on who your customers are. Here’s how to work out where you stand.

The £90,000 threshold, properly explained

The VAT registration threshold is £90,000 of taxable turnover. Two things trip trades up here.

First, it’s turnover, not profit. If you invoice £95,000 in a year but only take home £40,000 after materials and costs, you’re still over the threshold — HMRC looks at what you billed, not what you kept.

Second, it’s a rolling 12 months, not your tax year or the calendar year. At the end of every month you look back at the previous 12 months. The moment that running total exceeds £90,000, you have to register. You can’t wait for the year-end to check.

There’s also a forward-looking test: if you expect to go over £90,000 in the next 30 days alone — say you’ve just landed one big contract — you have to register straight away.

When you must register

Put simply, you must register if either applies:

• Your taxable turnover over the last rolling 12 months has gone over £90,000, or

• You expect it to go over £90,000 in the next 30 days on its own.

Once you’re required to register, there are deadlines to do it and penalties for registering late, so watch the running total as you grow. If you’re getting close, that’s the moment to speak to an accountant rather than after you’ve sailed past it.

Voluntary registration: when it’s worth it below the threshold

You can register for VAT before you hit £90,000. Whether that’s a good idea comes down to your customers.

Registering can help if:

• Most of your customers are VAT-registered businesses. They reclaim the VAT you charge, so your prices don’t really go up for them — and you get to reclaim the VAT on your own materials, tools, van costs and fuel. That’s real money back.

• You spend a lot on materials. The more VAT you pay out on purchases, the more being registered lets you reclaim.

• You want to look established. Some larger clients and main contractors prefer, or require, their subcontractors to be VAT registered.

Registering can hurt if:

• Most of your customers are homeowners. They can’t reclaim VAT, so adding it makes you effectively dearer overnight versus a non-registered competitor down the road. On domestic work, staying under the threshold is often the sensible play.

There’s no universal answer. A commercial electrician working for builders and a domestic handyman working for households can reach opposite, and correct, conclusions.

The domestic reverse charge — the big one for construction

If you work in construction as a subcontractor, there’s a rule you can’t ignore: the VAT domestic reverse charge for building and construction services.

In simple terms, for many construction services supplied between VAT-registered businesses in the construction supply chain, the subcontractor no longer charges VAT to the contractor. Instead, the contractor accounts for the VAT themselves. You still show the work on your invoice and note that the reverse charge applies, but you don’t add VAT on top and you don’t collect it.

This catches a lot of trades out, because you can be VAT registered and still, correctly, not be adding VAT to certain invoices. It applies to services reported under the Construction Industry Scheme (CIS) between VAT-registered parties, and it doesn’t apply when you’re working for an “end user” such as a homeowner. The rules on who counts as an end user and which services are in scope are fiddly, so this is firmly a check-with-your-accountant area — getting it wrong means either charging VAT you shouldn’t or failing to account for VAT you should.

Staying under vs going over

If you’re a domestic trade nudging the threshold, you face a real decision. Going over means adding VAT — currently 20% on standard-rated work — which either makes you dearer to homeowners or eats your margin if you swallow it. Some trades deliberately manage their turnover to stay under; others push through and grow, accepting the VAT step as the price of getting bigger.

Managing turnover to stay under is legal, but artificially splitting your business into two to dodge the threshold (“disaggregation”) is not, and HMRC challenges it. If you’re genuinely growing, the cleaner long-term answer is usually to register, price accordingly and keep scaling, rather than capping the business to sit under a line.

Once you’re registered

Being VAT registered means charging the right rate, keeping proper digital records, and filing VAT returns — normally quarterly — through Making Tax Digital-compatible software. Note that most work is standard-rated at 20%, but some jobs (certain energy-saving installations, some new-build and conversion work) attract a reduced or zero rate. Applying the wrong rate is a common and costly mistake, which is another reason to get an accountant to set you up properly from day one.

FAQ

What is the VAT threshold for 2026? The VAT registration threshold is £90,000 of taxable turnover in a rolling 12-month period. Go over it and registration is compulsory; stay under and it’s optional.

Is the threshold based on profit or turnover? Turnover — the total you invoice for taxable work, before deducting materials, costs or wages. It’s a common and expensive misunderstanding to think it’s profit.

Should I register for VAT voluntarily? It depends on your customers. If they’re mostly VAT-registered businesses, registering lets you reclaim VAT on your costs at little downside. If they’re mostly homeowners who can’t reclaim, registering usually just makes you dearer.

What is the construction reverse charge? It’s a rule where, for many construction services between VAT-registered businesses in the supply chain, the subcontractor doesn’t charge VAT — the contractor accounts for it instead. It doesn’t apply when your customer is an end user like a homeowner. Check the detail with your accountant.

Can I stay under the threshold on purpose? Managing your genuine turnover to stay under is legal. Artificially splitting one business into two to avoid registering is not, and HMRC actively challenges it.

Grow into VAT, don’t fear it

Crossing the VAT threshold is a sign the business is working — the trick is planning for it rather than being caught out. Trade Pilot helps you fill the diary with real local jobs and only charges when a genuine lead lands, never a monthly subscription, with each lead sold to no more than three trades in your area. Steady, qualified work makes it far easier to plan your turnover, and your VAT position, with your eyes open.

Related reading: VAT flat rate scheme · domestic reverse charge VAT · CIS deduction rates · how to price a job