From 1 April 2024, a UK business must register for VAT with HMRC when its taxable turnover exceeds £90,000 in any rolling 12-month period (increased from £85,000 under the Spring Budget 2024). Taxable turnover includes all supplies at the standard rate (20%), reduced rate (5%) and zero rate — but not exempt supplies. An e-commerce seller should also apply the forward-looking test: if there is a reasonable expectation that turnover will exceed £90,000 in the next 30 days alone, registration is required immediately regardless of historical figures. HMRC registration must be completed within 30 days of the liability arising, under section 3 of the Value Added Tax Act 1994 (VATA 1994) and Schedule 1.
Voluntary registration below the threshold is often beneficial for B2B e-commerce sellers because it allows recovery of input VAT on business purchases — hosting fees, advertising, packaging and fulfilment costs. A seller turning over £70,000 annually who spends £15,000 on zero-rated inputs may still reclaim £3,000 in input VAT. Once registered, the business must charge output VAT and file quarterly VAT returns (or monthly under the VAT Annual Accounting Scheme if turnover is under £1.35m). Making Tax Digital (MTD) for VAT, mandated from April 2022, requires compatible accounting software for all VAT-registered businesses.
Thornwick sells personalised homeware through its own Shopify store and Etsy. In the 12 months to February 2024, taxable turnover reached £91,500, crossing the then-threshold of £85,000 in August 2023. Thornwick should have registered by 30 September 2023. Had the April 2024 £90,000 threshold applied, the obligation would have arisen in November 2023. HMRC charged a late registration penalty of £800 under the VAT Default Surcharge regime. Thornwick now files quarterly returns using Xero, which connects directly to HMRC's MTD API.
⚠️Excluding zero-rated sales from the threshold calculation
→ Zero-rated supplies (e.g. children's clothing, printed books, food) count towards taxable turnover for registration purposes even though VAT is charged at 0%; only exempt supplies are excluded.
⚠️Missing the 30-day registration deadline after crossing the threshold
→ Set up an automated rolling 12-month turnover tracker in your accounting software; late registration triggers interest charges and penalties backdated to the date you should have registered.
⚠️Applying the wrong VAT rate to digital downloads
→ Digital products supplied to UK consumers are standard-rated at 20% under the VAT Act 1994; the reduced or zero rates that apply in some EU member states do not apply in the UK post-Brexit.