VAT (Value Added Tax) is a tax charged on most goods and services sold in the UK by VAT-registered businesses.
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Is It Time to Voluntarily Register for VAT in 2025/26?

For many small businesses, VAT registration is something to avoid — a sign of hitting the £90,000 turnover threshold that brings with it extra admin, quarterly returns, and the dreaded possibility of mistakes and penalties.

But with the VAT registration threshold frozen at £90,000 since April 2024, rising costs, and potential reform expected in 2026, a growing number of businesses are asking a different question:

Should I register for VAT voluntarily?

In this post, we explain when voluntary VAT registration is beneficial, what it means in practice, and how to decide if now is the right time for your business.

What Is Voluntary VAT Registration?

You are only required to register for VAT if your taxable turnover exceeds £90,000 in a rolling 12-month period (2025/26 threshold). This includes income from standard-rated and zero-rated goods and services — but excludes exempt sales and outside-the-scope income.

However, HMRC also allows you to register voluntarily if your turnover is below the threshold.

Voluntary registration means you:

  • Charge VAT on your sales (output tax)
  • Reclaim VAT on business expenses (input tax)
  • Submit VAT returns (usually quarterly)
  • Must follow Making Tax Digital for VAT rules

Who Might Benefit from Voluntary Registration?

Voluntary registration isn’t right for everyone — but it can be highly beneficial in certain situations.

1. You Sell to VAT-Registered Businesses (B2B)

If your clients are VAT-registered, they can reclaim the VAT you charge them — so adding VAT won’t affect their bottom line.

In this case:

  • You can reclaim VAT on your own purchases (computers, materials, rent, equipment)
  • Your customers are not impacted
  • You improve cash flow and potentially reduce costs

This is common for:

  • Consultants and freelancers working with VAT-registered firms
  • Agencies and suppliers serving larger businesses
  • Startups purchasing capital equipment upfront

2. You’re Incurring High Startup or Growth Costs

If you’re investing heavily in:

  • Equipment
  • IT systems
  • Website development
  • Office setup
  • Product stock

Then being VAT registered may let you reclaim 20% of those costs — even if your income is low.

For example, spending £20,000 on equipment allows you to reclaim £4,000 in VAT. That’s a significant saving for early-stage or growing businesses.

3. You Want to Appear More Established

In some industries, being VAT-registered signals credibility and professionalism. It can suggest that:

  • Your turnover is at or above the £90,000 threshold
  • You’re a serious, established supplier
  • You’re already working with larger clients

This is particularly relevant in consulting, creative, and technical sectors where perception matters.

When Voluntary Registration Might Not Be Worth It

While VAT registration has advantages, it’s not for everyone. There are several situations where voluntary registration may not be beneficial:

1. Your Clients Are Consumers or Small Non-VAT Businesses (B2C)

If your customers can’t reclaim VAT, your prices will effectively go up by 20% — unless you reduce them to keep prices level, in which case your profit margin shrinks.

For example:

  • Hairdressers
  • Tutors
  • Personal trainers
  • Tradespeople working directly for homeowners

In these cases, registering for VAT may make your services less competitive — or reduce your income.

2. Your Business Is VAT-Exempt or Has Minimal Input VAT

If you mostly sell VAT-exempt services (e.g. financial or education services) or your inputs are also exempt, there may be little to reclaim.

In such cases, registration adds admin without a clear benefit.

3. You’re Not Ready for the Admin

Being VAT-registered means:

  • Keeping digital records (as required by Making Tax Digital)
  • Sending quarterly VAT returns
  • Reconciling VAT properly on purchases and sales
  • Monitoring compliance closely

If your systems and support aren’t ready, this could increase the risk of errors or penalties.

Cash Accounting vs Standard VAT

If you register voluntarily, you can usually choose to use VAT Cash Accounting (if your expected turnover is under £1.35 million).

This means:

  • You only pay VAT when you receive payment
  • You reclaim VAT when you pay suppliers

This can help avoid cash flow problems — particularly if you offer credit terms or experience late payments.

By contrast, the standard VAT scheme accounts for VAT based on the invoice date, not payment date.

Flat Rate Scheme Option

If you’re a small business with annual taxable turnover under £150,000, you may be eligible for the VAT Flat Rate Scheme (FRS).

Under this scheme:

  • You charge VAT at 20% to your customers
  • But you pay a lower fixed percentage to HMRC, based on your sector (e.g. 14.5% for IT consultants)
  • You can’t reclaim input VAT (except on certain capital purchases)

This can simplify record keeping and still result in tax savings — particularly for businesses with few expenses.

Be cautious: “limited cost traders” (i.e. businesses with few goods purchases) must use a higher 16.5% rate, which often eliminates the benefit.

Future Changes to VAT Registration Threshold?

The VAT registration threshold was increased to £90,000 from April 2024, and the government has confirmed it will remain frozen until at least March 2026.

However, there is ongoing speculation that:

  • The threshold could drop in future Budgets to align with international standards
  • Reform may be announced in April 2026, alongside further Making Tax Digital expansions

If the threshold drops, many small businesses could be caught by VAT involuntarily — and may miss out on planning advantages now.

Voluntary registration before any change may give more flexibility and access to simplified schemes.

Key Considerations Before Voluntarily Registering

Before you register, make sure you:

  • Understand who your customers are and whether they can reclaim VAT
  • Have (or are willing to implement) MTD-compliant software
  • Know whether the Flat Rate Scheme or Cash Accounting applies
  • Are clear on the impact on your pricing strategy

Speak to your accountant or adviser to weigh the pros and cons for your specific situation.

Summary

Voluntary VAT registration isn’t just about hitting a threshold — it’s about making a strategic decision based on your business model, customer base, and growth plans.

You should consider registering if:

 You sell mainly to VAT-registered businesses
 You’re incurring high setup or capital costs
 You want to reclaim VAT on key purchases
 You want to futureproof against upcoming changes

You may want to hold off if:

 You sell to individuals or small non-VAT businesses
 You have little input VAT to reclaim
 You’re not ready for the compliance burden

VAT can be a burden — or a benefit — depending on how and when you approach it. Voluntary registration gives you the opportunity to control the timing and make VAT work for your business, rather than waiting for it to become compulsory.

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