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

Business growth is always positive, but unexpected VAT obligations can quickly turn into a headache. In the UK, the VAT registration threshold is currently £90,000 of taxable turnover on a rolling 12-month basis. If you cross that threshold, you must register within 30 days. You can deregister if your turnover falls below £88,000. These figures were updated in April 2024 and remain in effect today, but always check HMRC for the latest guidance. Understanding how VAT rules apply as you scale is essential. Here’s what to watch out for. 

VAT triggers that catch businesses out

The first surprise for many businesses is that VAT registration does not work on a neat financial-year basis. HMRC looks at any rolling 12-month period. If your taxable turnover exceeds £90,000 on any day, you must register within 30 days. Your effective registration date is usually the first day of the second month after crossing the threshold.

Another trigger is forward-looking. If you sign a contract that will push you over the threshold in the next 30 days, you must register immediately. In this case, the effective date becomes the day you realised this would happen.

Finally, remember that deregistration has its own rules. You can apply to deregister if your taxable turnover falls below £88,000. Some VAT schemes, such as the Flat Rate Scheme or Annual Accounting, have separate limits that you need to monitor.

What happens after registration

Once registered, you must charge VAT on taxable sales, keep digital records, and file VAT returns using software that meets Making Tax Digital requirements. HMRC may visit to review your records, so having clear processes and an audit trail is vital. Good record keeping makes compliance checks far less stressful.

Common pitfalls as you scale

One of the biggest mistakes is failing to monitor turnover regularly. Many businesses only check figures at year-end, which is too late. Set up an automated rolling 12-month total in your accounting software and review it monthly.

Another common misunderstanding is what counts towards taxable turnover. It includes standard, reduced and zero-rated sales, as well as certain reverse charge transactions. Exempt income does not count, but it’s easy to misclassify items without proper controls.

Finally, weak processes can create risk. HMRC expects version control for spreadsheets, documented VAT rate application, and automated checks where possible. Without these, errors creep in and compliance visits become more challenging.

Quick checks for the next quarter

Take time to review your rolling turnover and projected sales. Confirm that your accounting software is Making Tax Digital-compatible and digitally linked. Document how you apply VAT rates and handle credit notes, then test the process with a sample transaction. These small steps reduce risk and keep you ahead of HMRC requirements.