VAT is charged at 20% on most sales (5% reduced rate on things like domestic energy, 0% on most food and children's clothes). Businesses must register once taxable turnover in any rolling 12 months passes £90,000; after that they charge VAT on sales, reclaim it on purchases, and file digital returns quarterly under MTD.
The registration threshold creates a well-known cliff edge: crossing it means either raising prices by up to 20% or absorbing the cost. Plenty of small traders deliberately keep turnover just under the line for exactly this reason. Work out VAT-inclusive or exclusive prices instantly with the VAT Calculator.
A builder sitting at £88,000 of rolling 12-month turnover takes a £15,000 job and crosses the £90,000 threshold mid-year. From registration, every invoice either rises by up to 20% or the business absorbs the difference, though it can now reclaim VAT on materials. Watching the rolling total monthly, not just at year end, is what prevents the accidental crossing.
