Avoiding VAT surprises: what to watch out for as you grow

Growth is exciting — but it can also bring unexpected tax obligations. One of the biggest surprises for UK businesses is crossing the VAT registration threshold. With the current threshold at £90,000 and speculation about a possible drop to £30,000, many small businesses could soon find themselves registering for VAT for the first time.

Here’s what you need to know to avoid being caught off guard.

Why VAT catches businesses by surprise

The VAT registration threshold is based on taxable turnover, not profit. If your rolling 12-month turnover exceeds the threshold, you must register — even if your margins are slim or you’re reinvesting heavily in growth.

Many businesses unintentionally cross the line because:

• They don’t monitor turnover regularly
• Seasonal spikes push them over the threshold
• They assume VAT applies only to large companies

With a potential threshold reduction on the horizon, these risks will increase dramatically.

What happens when you cross the threshold?

Once you exceed the threshold, you must:

• Register for VAT with HMRC
• Start charging VAT on taxable goods and services
• Submit VAT returns digitally under Making Tax Digital (MTD) rules
• Keep accurate digital records of all VAT transactions

Failure to register on time can lead to penalties and interest charges.

Common VAT pitfalls for growing businesses

1. Not tracking turnover closely

VAT registration is triggered by a rolling 12-month total, not your financial year. Missing this detail is a common mistake.

2. Misunderstanding what counts as taxable turnover

Most sales of goods and services count, even if you’re not making a profit. Some exempt supplies don’t, but the rules are complex.

3. Ignoring partial exemption rules

If you sell both taxable and exempt goods or services, you may need to calculate what proportion of VAT you can reclaim — a tricky area for many businesses.

4. Failing to prepare for MTD

All VAT-registered businesses must submit returns using MTD-compatible software. Manual submissions are no longer allowed unless you have an exemption.

How to stay ahead

• Monitor turnover monthly – Use accounting software to track your rolling 12-month total.
• Plan for VAT in your pricing – Factor in VAT when setting prices to avoid margin erosion.
• Invest in digital tools – Choose MTD-compatible software early to avoid last-minute stress.
• Speak to an accountant – They can help you understand VAT rules, reclaim opportunities, and compliance requirements.

VAT surprises can derail growth plans — especially if the threshold drops to £30,000. By monitoring turnover, planning ahead, and getting expert advice, you can stay compliant and avoid unnecessary costs.

If you’re unsure whether you’re close to the threshold or what VAT means for your business, now is the time to speak to an accountant who understands small business needs.