VAT threshold 2026/27: how to avoid going over £90,000 without a disaggregation direction

By Hussein Bhaiji FCCA CTA, Managing Partner. Last reviewed: October 2026.

The VAT threshold for 2026/27 is £90,000, and your turnover is creeping towards it. Most of your customers are members of the public who cannot reclaim VAT, so registering means either putting your prices up by 20% or holding them and handing a sixth of every sale to HMRC. Someone in the pub tells you to split the business in two. So how do you avoid going over the VAT threshold legitimately, and what happens if HMRC decides your split was artificial?

What is the VAT registration threshold?

The UK VAT threshold for 2026 and the 2026/27 tax year is £90,000 of taxable turnover in any rolling 12-month period. It has been £90,000 since 1 April 2024. You must also register if you expect your taxable turnover in the next 30 days alone to go over £90,000. The deregistration threshold is £88,000.

(VATA 1994 Sch 1 paras 1 and 4, as amended by SI 2024/307.)

You must register if you meet either of two tests, and they work very differently.

The backward look. At the end of any month, if your taxable turnover for the 12 months then ending exceeds £90,000, you must tell HMRC within 30 days of the end of that month. Registration takes effect from the first day of the second month after the month you went over (VATA 1994 Sch 1 paras 1(1)(a) and 5).

The forward look. If at any point you expect your taxable turnover in the next 30 days alone to exceed £90,000, you must notify within 30 days. Registration takes effect from the start of that 30-day period, which is the date you had reasonable grounds to expect it, not the date you happened to notice (VATA 1994 Sch 1 paras 1(1)(b) and 6(2)).

Taxable turnover means the value of your UK sales that are not exempt from VAT, including zero-rated sales. It is turnover, not profit. Exempt and out-of-scope income does not count, and nor does the sale of the business’s own capital assets, such as a van or equipment (VATA 1994 Sch 1 para 1(7)), unless it is a standard-rated sale of land or buildings you have opted to tax. Services you buy from overseas suppliers under the reverse charge do count (VATA 1994 s 8), which catches out businesses spending heavily on overseas advertising platforms.

The backward look is a rolling test, not an annual one

This is the most common misunderstanding we see. It is not your accounting year and it is not the tax year. It is every consecutive 12-month period, tested at the end of every month.

How to stay under the VAT threshold legally

More than most people think, provided each change is genuine.

Time the work. Where you genuinely control when a job is finished or goods are delivered, completing work after a month end can keep the rolling figure below the line. Holding back the invoice on its own does not help. For a one-off job, turnover is counted when the supply is made: when goods are removed or made available, or when the work is completed (section 6(2) and (3) VAT Act 1994). If you take a deposit or any other payment before then, that part counts on the day you are paid (section 6(4)). Ongoing services paid for periodically count as each payment comes in (regulation 90 VAT Regulations 1995). This buys time; it does not solve growth.

Change what you supply. If you currently supply materials and labour, and your customer could buy the materials directly, your turnover falls. This has to be a genuine change to the contract and to who bears the risk, not a relabelling exercise. Buying the materials yourself and recharging them at cost does not help: the recharge is part of what you are paid for your supply and counts towards the threshold in full, unless you are genuinely buying as your customer’s agent. Online sellers have their own traps; see VAT on e-commerce sales in the UK.

Apply for an exception. If you have gone over because of a one-off event, and you can show HMRC that your turnover for the next 12 months will not exceed the deregistration threshold of £88,000, you can ask to be excepted from registration. You request form VAT1 by telephone, submit it with form VAT5EXC, and HMRC replies within 40 working days. An exception only covers the 12-month backward look (VATA 1994 Sch 1 para 1(3)). If a single contract will take you over £90,000 within the next 30 days, you must register; you cannot ask to be excepted.

Work out what registering would really cost. If a meaningful share of your customers are VAT-registered businesses, registration lets you reclaim input tax and may cost you very little. If you sell mainly to the public, look at the Flat Rate Scheme before ruling registration out: you pay a fixed percentage of turnover to HMRC, which for some trades is noticeably less than the full VAT you charge. Run the numbers before you reshape a business to stay small. Once registered you file under Making Tax Digital, so factor in the software too.

What is disaggregation, and when does HMRC act?

Splitting one business into two or more to keep each below the threshold is what HMRC calls artificial separation where the parts remain closely bound to one another. HMRC can issue a direction, known as a Notice of Direction, under paragraph 2 of Schedule 1 to the Value Added Tax Act 1994, treating the persons named in it as a single taxable person from the date of the direction or a later date it specifies. Paragraph 1A(2) requires HMRC to look at the extent to which those persons are closely bound to one another by financial, economic and organisational links. A direction only looks forward. The bigger risk is retrospective: if HMRC concludes that one person or partnership was carrying on the whole business all along, it can register that single entity from the date it should have registered and assess VAT on past sales.

Critically, HMRC does not have to prove you intended to avoid VAT. It only has to prove that the artificial separation resulted in VAT being avoided. Good faith is not a defence.

What does HMRC actually look at?

Its checklist covers VAT history, employees, finances, organisation, legal documents and customer base. In practice the questions are:

• One till, one bank account, one insurance policy, one set of stock?
• Do the same staff work across both without a real employment relationship with each?
• Can a customer tell there are two businesses?
• Are there genuine contracts and genuine invoices between them?

HMRC recognises three patterns: functional splits, such as wet sales and catering in a pub; geographical splits, such as a chain of launderettes; and temporal splits, such as a succession of companies each trading until it nears the threshold.

What should you do next?

Keep the rolling 12-month number in front of you. If you are within £10,000 of the line, model both outcomes properly: what registration would cost after input tax recovery, against what restructuring costs in complexity and risk. HMRC’s VAT registration estimator is a useful starting point for the first figure.

If you are considering a split, get it reviewed by our tax advisory team before you do it, not after HMRC opens a compliance check. By then you are defending a structure rather than designing one. Our team includes Chartered Tax Advisers and professionals who have worked inside HMRC, so we can tell you how a proposed structure will read to the officer who eventually looks at it.

If your turnover is approaching £90,000, speak to a Chartered Tax Adviser at our London, Manchester or Potters Bar offices before you make the decision. Read more on our VAT returns page, or see how we saw off a £190,000 retrospective disaggregation claim in our VAT registration case studies.

VAT threshold: frequently asked questions

When do I need to register for VAT?

When your taxable turnover for the last 12 months goes over £90,000, you must tell HMRC within 30 days of the end of that month. If you expect to go over £90,000 in the next 30 days alone, you must register straight away, with effect from the day you had reasonable grounds to expect it.

What is the VAT threshold for 2026/27?

£90,000 of taxable turnover in any rolling 12-month period. The deregistration threshold is £88,000.

Is the VAT threshold based on profit or turnover?

Taxable turnover, not profit. It is the value of your sales that are not exempt from VAT, including zero-rated sales, plus any services you buy from overseas suppliers under the reverse charge.

What happens if I go over the VAT threshold by mistake?

Register at once. HMRC backdates your registration to the date you should have been registered, so you may owe VAT on sales you have already made, and it can charge a failure to notify penalty under Schedule 41 to the Finance Act 2008. Where the failure was not deliberate the penalty is up to 30% of the VAT due, and it can be reduced to nil if you tell HMRC before it finds out and within 12 months of the VAT first becoming due. Deliberate failures cost up to 70% or 100%.

Can I split my business to stay under the VAT threshold?

Not artificially. If the parts are closely bound by financial, economic and organisational links, HMRC can treat them as one business; see what HMRC looks at before making a disaggregation direction.

Can I register for VAT voluntarily below £90,000?

Yes. You can register voluntarily at any turnover, which can make sense if most of your customers are VAT-registered businesses or you have significant VAT to reclaim on costs.