VAT Registration Threshold: What Will Happen in April 2026 and How to Prepare Now

 Why VAT Is About to Matter to More Small Businesses

The VAT registration threshold has long been a pressure point for growing businesses. Currently set at £90,000, it determines the point at which a business must register for VAT and start charging customers, submitting returns, and adhering to full VAT compliance obligations.

However, the government has signalled that this threshold will drop significantly from April 2026. While exact figures have not yet been confirmed, various policy papers, budget consultations, and expert commentary point to a reduced threshold likely in the region of £60,000 to £70,000 — possibly lower.

This change will affect thousands of small businesses that currently operate just under the threshold. For some, it will mean an unavoidable registration and added administration. For others, it presents a strategic opportunity to reassess pricing, cash flow, and business structure ahead of the new rules.

Understanding what’s likely to change and planning early is essential if you want to avoid disruption, penalties, or missed opportunities.

The Current VAT Threshold: A Quick Recap

As of 2025/26, a business must register for VAT if:

• Its taxable turnover exceeds £90,000 in any rolling 12-month period
• It expects to exceed the threshold in the next 30 days alone
• It receives goods into Northern Ireland from the EU over certain limits
• It opts to register voluntarily (even if turnover is below the threshold)

Once registered, the business must:

• Charge VAT on applicable goods and services
• Submit VAT returns (usually quarterly)
• Keep VAT records and issue VAT-compliant invoices
• Possibly pay VAT on stock, imports, and services received

The threshold has been frozen since 2017. With inflation and wage increases over the past eight years, more businesses have naturally drifted closer to the line — a phenomenon known as “fiscal drag.”

April 2026: What Is Likely to Happen?

In the Spring Budget 2025, HM Treasury indicated that the VAT registration threshold will be reformed from April 2026 as part of a broader modernisation of the tax system. While no exact figure has been legislated yet, working estimates across the tax profession suggest a new threshold of:

• £60,000 to £70,000 — potentially in line with the personal allowance or small business corporation tax thresholds
• A new mandatory registration band and possible buffer or grace zone for small traders

If this goes ahead, tens of thousands of businesses that were previously outside the VAT system will be brought in. This includes:

• Sole traders such as tradespeople, consultants, and therapists
• Freelancers and microbusinesses
• Online retailers and marketplaces
• Holiday let and Airbnb operators
• Franchisees and self-employed professionals

The rationale for the change is to reduce distortions and encourage fairer competition — but for business owners, it means higher compliance costs and immediate implications for pricing and customer expectations.

What Will It Mean for Your Business?

The main impact of being pulled into the VAT system is financial. While some businesses may benefit from reclaiming VAT on costs, others will suffer from reduced price competitiveness, particularly those selling directly to the public.

If you currently turn over between £60,000 and £90,000 annually, the likely implications are:

• You’ll need to register for VAT by April 2026 (or shortly after, depending on implementation)
• You’ll need to adjust your pricing strategy to reflect VAT-inclusive prices or show VAT separately
• You may need to review contracts, especially with non-VAT registered customers
• You’ll need to set up MTD-compliant accounting software (Making Tax Digital)

For example, if you currently charge £70,000 per year for services and the threshold drops to £65,000, you’ll need to start charging 20 percent VAT — increasing your total to £84,000 or reducing your net income if you choose to absorb the VAT yourself.

Options: Should You Register Early?

With changes on the horizon, some businesses may benefit from registering voluntarily before 2026. Voluntary registration offers:

• Ability to reclaim VAT on business purchases
• Improved credibility when dealing with larger clients
• Preparation and familiarity before the mandatory regime begins
• Simpler transition to Making Tax Digital processes

However, it also brings admin and cash flow responsibilities. It’s not always the right move for businesses serving non-VAT-registered individuals or where margins are thin.

A full review of your client base, pricing structure, and supply chain is critical. Merranti can help model both scenarios and advise on the best timing.

Strategic Planning Steps to Take Now

There are several things every small business owner should be doing now to prepare for the threshold change:

• Check your rolling 12-month turnover regularly to avoid surprise registration
• Segment your client base by VAT status to see who would absorb the increase
• Update invoicing systems to be VAT-ready, even if not yet registered
• Review accounting software to ensure it is MTD-compliant
• Assess whether incorporation or restructuring could reduce or delay liability
• Review capital expenditure timing — registering early might allow you to reclaim VAT on upcoming purchases

For example, a business planning to buy equipment in Q1 2026 could choose to register voluntarily in March 2026, reclaim the input VAT on that purchase, and then stay compliant as the mandatory regime begins.

Key Facts About the VAT Threshold Change in 2026

The UK VAT registration threshold is expected to fall from £90,000 to around £60,000–£70,000 from April 2026. This change will bring many small businesses into the VAT system for the first time. Those affected must begin planning now by reviewing turnover, pricing, client base, and accounting systems. Voluntary registration ahead of the rule change may offer some advantages. The new threshold will increase compliance obligations for sole traders, freelancers, and small limited companies across the UK.

How Merranti Accounting Can Help

Preparing for a VAT threshold change requires more than just checking your turnover. It’s about planning your pricing, understanding customer impact, and setting up the right systems to ensure you remain compliant without harming your margins.

Merranti can support you with:

• VAT registration advice and planning
• Financial modelling of pricing scenarios pre- and post-registration
• Bookkeeping systems setup and MTD compliance
• Advice on timing capital purchases and expense reclaim
• Long-term tax strategy for sole traders and small companies

Don’t wait for the April 2026 deadline to act. If your business is approaching or just under the £90,000 mark, now is the time to review your options with expert support.

Call: 01342 836 557
Email: contactus@merranti.com