Understanding the VAT Registration Threshold in 2025

As of 1 April 2024, the VAT registration threshold in the UK increased to £90,000. This means that if a business’s taxable turnover exceeds £90,000 in any rolling 12-month period, it must register for VAT with HMRC. The deregistration threshold has also risen to £88,000, allowing businesses to deregister if their taxable turnover falls below this level.

It is essential for businesses to monitor their turnover regularly to avoid unexpected VAT registration. Once registered, businesses must charge VAT on their goods and services, submit VAT returns, and comply with Making Tax Digital (MTD) requirements.

Exempt and Zero-Rated Income Explained

When determining whether you exceed the VAT registration threshold 2025, it’s crucial to understand the difference between exempt and zero-rated income:

  • Exempt Income: This includes earnings from residential property rental, financial services, and bank interest. Since exempt income does not count towards taxable turnover, it does not contribute to the VAT threshold calculation.
  • Zero-Rated Income: This applies to products and services that are taxed at 0%, such as certain food items, books, and children’s clothing. Unlike exempt income, zero-rated sales must be included when calculating taxable turnover.

Failing to distinguish between these categories can lead to incorrect VAT assessments, potentially causing compliance issues with HMRC.

Strategies for Businesses Near the Threshold

For businesses whose turnover is close to the VAT registration threshold 2025, remaining under the limit can help avoid VAT compliance obligations. If your customer base consists primarily of private individuals (who cannot reclaim VAT), registering for VAT could make your pricing less competitive. To manage your taxable turnover, consider these strategies:

  • Adjust Your Workload: If your turnover hovers near £90,000, slightly reducing working hours or taking on fewer jobs may prevent unnecessary VAT registration.
  • Encourage Direct Purchases: If your services require materials, ask customers to buy these directly instead of purchasing them yourself. This can help keep your taxable turnover lower.
  • Monitor Turnover Regularly: Keep a close watch on your rolling 12-month turnover rather than relying on fixed accounting periods to avoid unexpected VAT obligations.

Implementing these strategies can help small businesses remain under the threshold while maintaining profitability.

How We Can Help

Understanding VAT rules and how they impact your business can be challenging. At Lewis Brownlee, we help businesses navigate VAT registration, compliance, and tax efficiency strategies. Whether you need advice on structuring your income, VAT exemptions, or Making Tax Digital requirements, we’re here to help.

For expert VAT guidance tailored to your business needs, contact us today. Our team is ready to support you.