VAT UK — Registration, Returns, and Schemes Explained 2026/27

Value Added Tax (VAT) is a consumption tax charged on most goods and services sold by VAT-registered businesses in the UK. The standard rate is 20%. Once your business turnover hits the VAT registration threshold — £90,000 in 2026/27 — registration becomes compulsory.

This hub covers everything VAT-registered businesses need: when to register, how VAT returns work, which scheme suits your business, and how to reclaim input tax.

VAT Rates at a Glance (2026/27)

The critical distinction: zero-rated businesses still register and file returns, and can reclaim input VAT. Exempt businesses cannot register for VAT and cannot reclaim input tax.

The VAT Registration Threshold

Rolling 12-month test: You check VAT turnover over the past 12 months on the last day of every month — not just at the tax year end. If you hit £90,000 at any point, you must notify HMRC within 30 days of the month end.

Example: Your turnover for the 12 months to 31 May 2026 is £91,000. You passed the threshold at 31 May. You must notify HMRC by 30 June. You begin charging VAT from 1 July.

Voluntary registration

You can register before reaching £90,000 if it makes commercial sense. Benefits include reclaiming input VAT on purchases — useful if you have significant business expenses. Drawbacks: added admin, and if your customers are consumers (not VAT-registered businesses), they cannot reclaim the VAT you charge — making your prices effectively 20% higher.

How VAT Returns Work

Quarterly returns (standard)

Most businesses file quarterly. Each return covers 3 months and is due 1 month and 7 days after the quarter end.

The return shows:

• Output VAT: VAT you charged customers on sales
• Input VAT: VAT you paid on business purchases
• Net payment or repayment: Output VAT − Input VAT

If input VAT exceeds output VAT (e.g., a business with high supplier costs or zero-rated sales), HMRC repays the difference.

Making Tax Digital for VAT

All VAT-registered businesses must use Making Tax Digital (MTD) compatible software to keep digital VAT records and submit returns. You cannot use HMRC’s old online portal to file. Compatible software includes accounting packages such as Xero, QuickBooks, Sage, and FreeAgent.

VAT Schemes for Small Businesses

Flat Rate Scheme (FRS)

Pay a flat percentage of your gross (VAT-inclusive) turnover to HMRC — no complex input/output calculation required.

Flat Rate Scheme percentages 2026/27 (selected sectors):

New businesses in their first year get a 1% discount on the flat rate.

When FRS saves money: If you buy few goods or services with VAT (service businesses, for example), the fixed rate is often lower than the net VAT you would otherwise pay. If you make large VAT-reclaimable purchases, standard VAT accounting usually wins.

Capital goods exception: Under FRS you can still reclaim VAT on capital assets costing £2,000 or more (VAT-inclusive) in a single purchase.

See the full guide: VAT Flat Rate Scheme — Is It Worth It?

Cash Accounting Scheme

Under standard VAT accounting, you account for VAT when you issue an invoice — even if the customer hasn’t paid yet. The Cash Accounting Scheme lets you account for VAT only when you receive (or make) payment. This helps businesses with slow-paying customers avoid paying VAT before they’ve been paid. You can join if your VAT-exclusive turnover is £1.35 million or less.

Annual Accounting Scheme

Submit one VAT return per year instead of four. You make advance payments throughout the year (based on the previous year’s liability), then submit a final balancing return. Reduces admin burden. You can join if your VAT-exclusive turnover is £1.35 million or less.

VAT Registration Scheme (for retailers)

Retailers who sell to the public can use retail schemes to calculate VAT on sales without tracking VAT on each individual transaction. The main options are the Point of Sale scheme, the Apportionment scheme, and the Direct Calculation scheme.

Reclaiming VAT on Business Purchases

VAT-registered businesses reclaim input tax — VAT paid on purchases used for business purposes. Key rules:

• You must hold a valid VAT invoice showing the supplier’s VAT number and the VAT charged
• You can only reclaim VAT on purchases for business use — not personal use
• Cars: VAT on car purchase is blocked unless the car is used 100% for business (very rare). VAT on commercial vehicles (vans) is reclaimable
• Business entertainment: VAT is blocked on client entertainment (meals, events for customers)
• Mixed use: only the business proportion of VAT is reclaimable

See the full guide: Reclaiming VAT on Business Entertainment and Expenses

VAT Registration Step by Step

1. Check you need to register (turnover over £90,000 or voluntary)
2. Register online via HMRC’s VAT registration service (GOV.UK)
3. Receive your VAT registration number (9 digits) — typically within 30 working days
4. Add VAT number to invoices and start charging VAT from your effective registration date
5. Set up MTD-compatible software
6. File first VAT return on schedule

See the full guide: How to Register for VAT UK

When Can You Deregister?

You can apply to deregister if your VAT-taxable turnover drops (or you expect it to drop) below £88,000. After deregistering, you must account for VAT on any stock or assets on which you reclaimed VAT at deregistration — a final VAT return is required. You cannot deregister simply to avoid admin if you expect turnover to stay above the threshold.

Articles in This Cluster

• VAT Guide UK — How VAT Works for Businesses — the comprehensive overview
• How to Register for VAT UK — step-by-step registration
• VAT Flat Rate Scheme — Is It Worth It? — FRS calculation and comparison
• Reclaiming VAT on Business Entertainment and Expenses — what you can and cannot reclaim

Related Guides

• Self-Employment Tax Guide UK — income tax and NI for the self-employed
• Self-Assessment Tax Return Guide — filing your annual return
• Sole Trader vs Limited Company UK — choosing the right business structure