Ask most business owners when they need to register for VAT and the answer usually involves their year-end: “we’ll see where we land when the accounts are done.”
That’s the mistake. The VAT registration test isn’t your financial year. It’s a rolling 12 months — which means every month, you should be looking back across the previous twelve, not waiting for your year-end to find out where you stand.
How the Rolling Test Actually Works
At the end of every calendar month, add up your taxable turnover for the twelve months just gone. If that total is over £90,000, you must register for VAT.
Two things to note about what goes in the total. It’s turnover, not profit — your sales, before any costs. And “taxable” catches more than people expect: standard-rated, reduced-rated and even zero-rated sales all count. Only genuinely exempt income sits outside the test.
The window moves every month. December to November, January to December, February to January — each one is a fresh test, whatever your accounting year says.
Why Strong Months Mid-Year Catch People Out
This is where the trouble usually starts. A good run of trading — a strong summer, a big contract, a busy Christmas — can push your rolling total over the line while your annual figures still look comfortable.
Picture a business that turned over £80,000 last financial year. Nowhere near the threshold, nothing to think about. But bolt a strong May, June and July onto the back end of that year and the twelve months to 31 July can be through £90,000 — even though no set of annual accounts will ever show it. The obligation has already been triggered; the year-end just hasn’t caught up.
The Second Test: The Next 30 Days on Their Own
There’s a forward-looking test too, and it’s stricter. If you expect your taxable turnover in the next 30 days alone to go over £90,000 — you land one very large contract, say — the clock starts at once: you must notify HMRC within that 30-day window — no waiting for a month-end — and registration takes effect from the date you first had grounds to expect it.
It’s rarer, but it exists precisely so a sudden jump in trade can’t slip through the monthly look-back.
The Deadline — and What Missing It Costs
Cross the threshold on the look-back test and you must notify HMRC within 30 days of the end of the month it happened. Go over during August, for example, and you have until 30 September to tell HMRC — with your registration taking effect from 1 October.
Miss the deadline and the consequences are unpleasant, because your registration date doesn’t move: you’re treated as registered from the date you should have been. That means you can owe VAT on sales you never charged it on. Unless you can go back to customers and ask for it — rarely a comfortable conversation — that VAT comes straight out of your margin, and failure-to-notify penalties can be added on top. Some VAT on pre-registration costs can be recovered once you’re in, which softens the blow — but it rarely comes close to covering the output VAT owed.
The two-minute habit: once a month, when the bookkeeping is done, check the rolling 12-month total. Modern software will show it in a couple of clicks. If you’re within £10,000 of the threshold, start planning — pricing, schemes, timing — rather than reacting after the line has been crossed. And if a one-off spike pushed you over but trade is genuinely falling back, an exception can sometimes be agreed with HMRC, if you can show the next twelve months will stay under the £88,000 deregistration threshold — but it’s a case to make within the same 30-day window, not an assumption.
Know where you stand every month
The rolling test only catches people whose bookkeeping is behind or whose totals nobody is watching. As your ICAEW Chartered Accountant and bookkeeper, here is how I can help:
- Monthly bookkeeping — figures kept current, so the rolling total is always a known number
- Threshold monitoring — we watch the 12-month total and flag it while there’s still time to plan
- Registration, handled — the notification, effective date and first return, done properly and on time
- Scheme advice — standard, flat rate or cash accounting: a straight answer on what suits your business
- Pricing the change — what registration means for your prices and margins before it lands
This post is intended as general guidance only. Thresholds and HMRC processes change. Always seek specific advice tailored to your own circumstances and refer to the latest HMRC guidance.