UK VAT in 2026: What's Changed, What Hasn't, and How to Calculate It

The VAT Landscape in 2026: Stable Threshold, New Digital Rules

If you've been reading headlines about VAT thresholds dropping, you can breathe easy. For the 2026/27 tax year, the UK VAT registration threshold is confirmed at £90,000 — unchanged from the previous year. Despite earlier speculation about a significant reduction to support HMRC revenue, the government opted to hold the line to protect small business cash flow.

That said, 2026 is far from a quiet year for tax. A separate but equally important change — Making Tax Digital for Income Tax (MTD ITSA) — comes into force on 6 April 2026 for sole traders and landlords earning over £50,000. If you're a tradesperson approaching that income level, this affects how you keep records and report to HMRC.

This guide covers both: the confirmed VAT rules for 2026/27, and what the new MTD ITSA rules mean in practice.

Core VAT Thresholds for 2026/27

Here are the two figures every UK business owner needs to know:

Registration threshold: £90,000

If your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period, you must register for VAT with HMRC.

Deregistration threshold: £88,000

If you're already VAT-registered and your taxable turnover drops — or you expect it to stay — below £88,000 for the next 12 months, you can apply to cancel your VAT registration.

The £2,000 gap between the two thresholds is intentional. It prevents businesses from constantly registering and deregistering as their turnover fluctuates around the boundary.

When Are You Legally Required to Register?

There are two separate triggers for mandatory VAT registration. You need to act if either applies:

The Backward Look

Check your total VAT-taxable turnover for the last 12 months on a rolling basis — not a calendar year, but any 12-month window. If that figure exceeds £90,000, you must register.

HMRC expects you to check this monthly. If you go over in, say, the 12 months ending 31 March 2026, you must notify HMRC by 30 April 2026 and your registration takes effect from 1 May 2026.

The Forward Look

If at any point you expect your turnover to exceed £90,000 in the next 30 days alone — for example, you've just signed a large contract — you must register immediately, before those 30 days are up.

This is the trigger most people miss. It's not about your annual projection; it's about a single 30-day window.

Overseas Sellers (NETPs)

If your business is based outside the UK but you supply goods or services to UK customers, there is no threshold. You must register from your very first sale.

What Counts Toward the £90,000 Threshold?

This catches many tradespeople out. The threshold applies to your VAT-taxable turnover — which includes:

• Standard-rated sales (20%)
• Reduced-rate sales (5%)
• Zero-rated sales (0%)

Yes, zero-rated sales count. If you do a lot of new residential builds (zero-rated) alongside standard-rated work, both figures add up toward your £90,000 limit.

What does not count: exempt supplies (such as certain financial services or insurance), and sales of capital assets like a van or equipment.

The 2026 VAT Rates

For most tradespeople doing general building, plumbing, electrical, or decorating work for homeowners or businesses, the standard 20% rate applies to everything you invoice.

How to Calculate VAT: The Simple Formulas

Adding 20% VAT to a net price:

Multiply the net amount by 1.20.

Example: £850 net × 1.20 = £1,020 gross

Removing 20% VAT from a gross price (reverse VAT):

Divide the gross amount by 1.20.

Example: £1,020 gross ÷ 1.20 = £850 net

Finding the VAT amount only:

Gross minus net = VAT.

Example: £1,020 − £850 = £170 VAT

Use our free VAT Tax Calculator to do this instantly — just enter your amount and toggle between adding or removing VAT.

Once You're Registered: Your Obligations

Registration isn't just a formality. Once you cross the threshold, you have four core obligations:

1. Charge VAT on all taxable sales

From your effective registration date, every invoice for standard-rated work must include 20% VAT, shown separately as a line item alongside your VAT registration number.

2. Submit VAT Returns quarterly

Most businesses submit quarterly. The deadline is one calendar month and seven days after the end of your VAT period. So if your quarter ends 31 March, your return and payment are due by 7 May.

3. Keep digital records under MTD for VAT

All VAT-registered businesses must keep digital records and submit returns using HMRC-compatible software. Paper records and manual spreadsheets are not sufficient.

4. Pay VAT owed to HMRC on time

Late payment attracts interest and penalties. Set up a direct debit to avoid missing deadlines.

What's New in April 2026: MTD for Income Tax

While the VAT threshold is unchanged, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) becomes mandatory on 6 April 2026 for sole traders and landlords with annual income over £50,000.

This is separate from VAT — it affects your income tax reporting, not your VAT returns. Under MTD ITSA, you must:

• Keep digital records of all income and expenses
• Submit quarterly updates to HMRC (instead of one annual Self Assessment return)
• Submit a final declaration at the end of the tax year

The rollout continues in subsequent years: income over £30,000 from April 2027, and over £20,000 from April 2028 (proposed).

If you're a tradesperson earning above £50,000 and you're not already using digital record-keeping software, April 2026 is your hard deadline.

Voluntary VAT Registration: Is It Worth It?

You can register for VAT voluntarily even if your turnover is below £90,000. This makes sense in two situations:

You sell mainly to VAT-registered businesses. They can reclaim the VAT you charge, so it doesn't cost them anything extra. Meanwhile, you can reclaim VAT on all your business purchases — tools, materials, van costs, fuel.

You're starting out and have significant startup costs. Registering early lets you reclaim VAT on equipment and materials from day one.

The downside: you add 20% to your prices for customers who can't reclaim VAT (most homeowners). This can make you less competitive for domestic work.

Common VAT Mistakes That Cost Tradespeople Money

Forgetting zero-rated sales count toward the threshold.

Many tradespeople doing new builds assume their zero-rated turnover doesn't matter. It does — and missing the registration deadline triggers penalties.

Not registering on time.

HMRC can charge a surcharge of up to 15% of the VAT owed from the date you should have registered. The longer you leave it, the worse it gets.

Charging VAT before you have a VAT number.

You cannot legally charge VAT until HMRC has issued your registration number. If you've applied but not yet received it, don't add VAT to invoices — you can issue a VAT-only invoice later once registered.

Mixing up net and gross on quotes.

Always be explicit: "£500 + VAT" or "£600 including VAT." Ambiguity leads to disputes and unhappy clients.

Quick Reference: VAT Calculator for UK Tradespeople

Whether you're quoting a job, checking a supplier invoice, or working out how much VAT you owe, our free VAT Tax Calculator handles the maths instantly:

• Add VAT — enter your net price, get the gross total
• Remove VAT — enter a gross price, strip out the VAT
• Works for both 20% standard rate and 5% reduced rate
• No signup, no account needed — works on your phone on-site

The Bottom Line

For 2026/27, the key facts are simple: the VAT registration threshold stays at £90,000, the deregistration threshold is £88,000, and the standard rate remains 20%. The big change this year is MTD for Income Tax arriving in April — a separate obligation that affects how sole traders earning over £50,000 report their income.

If you're approaching the VAT threshold, start keeping proper digital records now. If you're already registered, make sure your invoices show VAT correctly and your returns are submitted on time.

QuoteInvoice automatically calculates and displays VAT on every invoice — and keeps the digital records you need for MTD. Try it free for 14 days.