If you’re freelancing or working as a sole trader in the UK, there’s a magic number you need to keep an eye on: £90,000. That’s the VAT threshold, and once you cross it, you’ll need to register for VAT and start charging it to your clients.
💡 You don’t need to be a limited company to register for VAT – the threshold applies to you as an individual sole trader!
So what exactly is the VAT threshold, and how do you know if you’ve hit it?
The threshold: £90,000 in taxable turnover
The VAT threshold is currently set at £90,000 in taxable turnover.
💡 Taxable turnover is the total value of everything you sell, minus anything that is VAT exempt or out of scope.
There are two situations where you’ll need to register for VAT:
1: Your taxable turnover has already hit £90,000
If you’ve earned £90,000 in taxable turnover in any rolling 12-month period, you’re legally required to register for VAT within the next 30 days.
The key word here is “any” rolling 12-month period – not just a single tax year. You could earn £90,000 between November of one year and October the next, and you’d still need to register for VAT, even though that income is spread across two different tax years.
2: You expect to hit £90,000 in the next 30 days
If you’re about to land a big contract or project that will push your taxable turnover over £90,000 in the next 30 days alone, you need to register for VAT straight away. You can’t wait until you’ve actually been paid – for this scenario, it’s based on your expectation of earnings.
What counts as taxable turnover?
So taxable turnover isn’t just “everything you earn” – like we said earlier, it’s the total value of everything you sell as a sole trader, minus anything that’s VAT exempt or out of scope.
This means it’s only your self-employed income that counts. If you work a salaried job alongside your freelance gig, that employed income doesn’t count towards the VAT threshold – just your freelance earnings.
Most goods and services you sell will count towards this threshold. But if you’re selling things that are VAT exempt (eg. certain financial services or healthcare), those sales don’t count toward the £90,000.
Interestingly, zero-rated items do count toward your taxable turnover, even though you’re charging VAT at 0%. We know, it’s weird. But that’s how it works.
What happens when you cross the threshold?
Once your taxable turnover hits £90,000 in any 12-month stretch (or you expect to earn that much in the next 30 days), you’ve got 30 days to register for VAT with HMRC.
If you’re late registering, you might face penalties, interest charges, or even have to backpay VAT from your effective registration date. Not fun!
Lastly, you only start charging VAT from your official registration date onwards. So for example, if you register partway through the year, you don’t have to worry about charging VAT on income you’ve already earned before that date.
What if you’re under the threshold?
If you’re making less than £90,000 in taxable turnover, registering for VAT is completely voluntary. You can if you want to, but there are pros and cons to consider.
The main benefit of voluntary registration is that you can claim back VAT on your business expenses. If you spend a lot on supplies or equipment that includes VAT, being registered means you can reclaim that money. This can be really helpful for cash flow.
On the flip side, there’s a lot more paperwork involved. You’ll need to submit regular VAT returns, keep detailed records, and charge VAT to your clients (which might make your prices less competitive if they’re not VAT registered themselves).
💡 More VAT questions? We’ve got answers! Check out our complete guide to VAT for sole traders.
Hnry sorts it for you
Once you cross that £90,000 threshold, VAT becomes part of your business admin. You’ll need to charge it, collect it, keep records, and file returns on schedule.
If that sounds like a lot to manage on top of actually running your business, we get it! That’s why we exist – Hnry handles all your VAT admin automatically, from calculating and collecting VAT to filing your VAT returns on time. We’re also fully Making Tax Digital for VAT compliant, so if you use our service, you will be too. Easy!.
In short, using Hnry means you can focus on the fun stuff (like the actual work), and we’ll make sure all your tax stuff gets sorted.
No stress, no missed deadlines, no penalties. Simple as that.
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