Should I Register for VAT? Most People Are Asking the Wrong Question

Glenn Bowen, Director, Grampian Accounting – August 2026

When a client asks me whether they should register for VAT, they almost always start in the same place: “Am I at the threshold yet?”

It’s the wrong question to start with. The first question should be: who are you selling to, and are they VAT registered? Get that answer right and the registration decision answers itself — sometimes years before the threshold ever becomes relevant, and usually to the benefit of more cash in your pocket.

The short version

The threshold tells you when you must register. Your customers tell you when you should.

If you’re selling to VAT-registered businesses, get registered and start recovering VAT on your costs from day one — you’re leaving money on the table otherwise. If you’re selling to the public, stay out as long as you can, but know your numbers and have your pricing plan ready before you get there.

The threshold, for reference

The VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period at the time of writing. It’s been at that level since April 2024 and is unchanged for 2026/27. Cross it and you must register within 30 days of the end of the month in which you crossed it. The deregistration threshold sits slightly lower at £88,000.

Note the words “rolling 12-month period.” This isn’t measured against your tax year or your accounting year — it resets every month. This one always catches people out, especially those who do their books at the year end. Don’t be that person.

But the threshold is a legal obligation, not a strategy. Below it, registration is your choice. And that choice should be driven by your customers.

Why it comes down to who you sell to

Here’s the difference, using a gardening business as an example.

Selling to domestic customers

Say you quote £1,000 for a landscaping job. You’re not VAT registered, the customer pays £1,000, and you keep £1,000.

Now register for VAT voluntarily. You have two options, and both of them cost you.

Option one: add VAT on top. Your £1,000 job becomes £1,200. The customer isn’t VAT registered, so they can’t reclaim that £200. They’re comparing your £1,200 quote against a competitor’s £1,000 quote for the same work. You’ve just made yourself 20% more expensive for no benefit to them.

Yes, you can now reclaim VAT on your supplies. But it’s rarely a good trade — and if it were, if you really could win that job at £1,200, I’d be asking why you weren’t charging £1,200 in the first place?!

Option two: absorb it. You keep the price at £1,000 to stay competitive. But that £1,000 is now VAT-inclusive, so £166.67 of it belongs to HMRC. You only keep £833.33.

Same job. Same customer. You’ve either lost the work or lost £166.67.

That’s why, for a domestic-facing business, my advice is usually to stay out of VAT for as long as you legitimately can, and register only when the threshold forces you to.

Selling to commercial customers

Now run the same job for a commercial client — a property management company, a developer, a business with grounds to maintain — and the picture inverts completely.

You invoice £1,200 including VAT. They put it on their VAT return and reclaim the £200. The job has still cost them £1,000. Your price hasn’t moved in any way that matters to them, and you’re no less competitive than the unregistered gardener quoting £1,000.

But look at what’s changed on your side. You’re now reclaiming VAT on your costs — materials, plant hire, fuel, van servicing, tools, phone bill, accountancy fees. All of that VAT used to be a cost. Now it’s recoverable.

You’ve lost nothing on margin (in fact you’ve improved it by reclaiming your material VAT), and you’ve improved your cash position by a sixth on everything you buy that carries VAT — all while sitting well below the threshold.

The decision, simply put

Selling mainly to VAT-registered businesses? Register from day one, regardless of your turnover. There’s no competitive downside and a real cash benefit.
Selling mainly to the public? Stay unregistered as long as you legitimately can — but plan for the day you cross.

What about a mix of both?

Most real businesses aren’t purely one or the other. A joiner might fit kitchens for homeowners and do the same job for a housebuilder in the same month.

If that’s you, look at where the money actually comes from rather than where the jobs come from. If the bulk of your turnover is commercial, the domestic pricing hit is a small price for full input VAT recovery. If the bulk is domestic, registering early to serve a handful of commercial jobs rarely pays.

Planning for the day you cross

This is the part that causes the most pain in practice, and it’s entirely avoidable.

If you’re a growing, domestic-facing business, you will hit £90,000 eventually. What you don’t want is waking up one morning, realising you crossed it last month, and only then thinking about pricing. By that point you’re registered whether you like it or not, you’ve got 30 days to sort it, and every customer conversation is a reactive one.

Because the test is a rolling 12 months, it isn’t something you check once a year at your accounts meeting — it’s something that can creep up on you in the middle of a busy summer.

So if you’re anywhere near the threshold, the questions to be answering now are:

How close am I actually? Rolling 12-month turnover, checked monthly, not last year’s accounts. We do this as a matter of course for clients whose books we look after.
What happens to my pricing? Do I add 20% and lose some price-sensitive customers, absorb it and take the margin hit, or something in between? It’s always a hard call, but the worst outcome is not making one — going back to requote customers after the event, or taking a heavy hit in a single month by absorbing the VAT.
How much input VAT will I recover? For a trade with real material costs, this can offset a meaningful chunk of the pain. For a service business with few costs, it won’t.
One thing I’d add: don’t let the threshold stop you growing. I’ve seen businesses turn work away or slow themselves down deliberately to stay under £90,000. Occasionally that’s a rational call, but far more often it’s fear of an unplanned change rather than a genuine commercial decision. Plan it properly and it’s a hurdle, not a wall.

There are exceptions to all of this — VAT has more complexity to it than one article can cover (or even a hundred, just try and decide which items at Greggs have VAT on them when you’re next in). But the customer question is the right place to start, and on its own it’ll get you close to the right answer.

If you’re not sure where you stand it’s a ten minute conversation on the phone with your accountant and if they won’t pick up the phone, or take weeks to reply by email, then give us a call. We’d be delighted to help where they aren’t!