Changes to registration threshold?

1 April 2026

Although an announcement about the registration limit might be made in the Chancellor’s Autumn Budget in November, any change in the current registration threshold of £90,000 will not take effect until 1 April 2026. This has been the relevant date every year since 1973.

Can your business fully claim input tax?

If your business has some exempt income, or non-business activities such as a charity, then you cannot claim input tax on some or all of your expenses. This creates two potential outcomes if the registration threshold changes:

Decreased threshold. Some of your suppliers who are not registered will need to register and charge you 20% VAT on the goods and services they provide, which will increase your costs.

Increased threshold. If the sales threshold is increased from £90,000 to £120,000, as has been rumoured, your pool of suppliers not charging VAT should increase, which will improve your bottom line profit.

An increased threshold might encourage some of your existing suppliers to accept more work. It is a proven fact that some businesses restrict their trading so that their annual sales do not exceed the compulsory limit of £90,000.

Prepayment option?

If the registration threshold is reduced significantly, meaning that many of your unregistered suppliers will be forced to register for the first time, there will be advantages in prepaying for some supplies before they register in April, creating a tax point for VAT purposes based on the payment date. The tax point is fixed, even if the work is carried out by the supplier after they have registered. Of course, this carries the risk of the work not being done!

Deregister?

When the registration threshold changes, the deregistration threshold follows, and it is usually £2,000 less than the registration threshold, i.e. it is currently £88,000. If the registration threshold increases from £90,000 to £120,000, the deregistration threshold should increase to £118,000. The deregistration opportunity is always based on your expected taxable sales in the next twelve months.

However, if you deregister there is a potential trap, i.e. you will have to account for output tax on any stock and assets you own on your final day in the VAT club if you claimed input tax when you bought them. This is calculated according to the market value of the asset(s) on your deregistration date. If the total VAT owed on all stock and assets is less than £1,000, it is de minimis and excluded from your final return.

Example. Decorator Dan is registered for VAT with annual sales of £130,000. He is considering a reduction in his trading hours by working four days a week instead of five. An increase in the deregistration threshold to £118,0000 on 1 April 2026 could create an opportunity for Dan to deregister without a significant loss of income. If all or most of Dan’s customers can claim input tax, there will be minimal benefits with deregistration because he will lose the opportunity to claim input tax on his materials, tools and other expenses.