Ceiling

Should you stay under the VAT threshold?

Last updated 25 September 2026

  • Once you are VAT-registered, about a sixth of what your customers pay you goes to HMRC.
  • You get back the VAT on what you buy for the business - so buying new costs you far less than the 20% most people fear. Buying used from private sellers gets you nothing back.
  • Registering also means a VAT return every 3 months, kept in approved software.

What VAT is

VAT is a tax on what you sell - 20% on most things. Until your sales over any 12 months in a row pass £90,000, you do not have to charge it. Once they do, you must register and add it to your prices - how the threshold works.

What it really costs you

If you sell to the public, you usually cannot just put your prices up by 20%, so the VAT comes out of what you already charge. Here is one sale - bought for £600, sold for £1,000 - and what you keep:

You keepBought new from a shop or supplierBought used from a private seller
Not registered£400£400
Registered£333.33£233.33
Registered, margin schemeNot available£333.33
  • Bought new: the £600 included £100 of VAT, which you get back. You only lose the VAT on the value you added - £400 becomes £333.33.
  • Bought used: a private seller charged no VAT, so there is nothing to get back, and a sixth of the whole price goes to HMRC - £400 becomes £233.33. That is why people who buy used and resell work hardest to stay under.
  • The margin scheme softens that for second-hand goods: VAT is a sixth of your profit rather than of the price. The catch is paperwork - a stock book tracking every item, with the purchase and sale invoice for each.

If your customers are VAT-registered businesses, it is different: they can reclaim the VAT you charge, so you can add it on top and it costs nobody anything.

The paperwork

  • A VAT return, usually every 3 months, with its payment.
  • Records kept digitally and returns sent through software HMRC accepts, under Making Tax Digital - a spreadsheet alone is not enough.
  • Invoices that show the VAT, and VAT charged from the day you are registered.

You would not be alone

In a survey of 2,009 businesses for HMRC, 20% of unregistered businesses close to the threshold admitted to doing something to stay under it - most often closing for a time or stopping their advertising, or turning work down. 78% said they would struggle to raise prices to cover VAT. Businesses that sell to the public and have low costs felt the hit most.

Staying under is legal. Splitting one business into several to keep each under can be treated by HMRC as one business, so do not.

Is Ceiling right for you?

If you want to stay under and keep things simple, Ceiling is a quick check: add each month’s sales and it tells you how much you can still invoice. It is free, and it does not do your accounts.

If your business is growing past £90,000, or you would rather have proper books, accounting software with VAT built in will serve you better. It keeps your records, works out your VAT and files your returns under Making Tax Digital. For example:

We are not paid to mention any of them. For advice on your own situation, an accountant is the right person to ask.

Where this comes from

Should you stay under the VAT threshold? · Ceiling