UK VAT Guide for Small Businesses in 2026: What You Need to Know

UK VAT Guide for Small Businesses in 2026: What You Need to Know

VAT can be one of the most confusing areas of tax for small business owners. Whether you’re a sole trader, partnership or limited company in North Shields or the wider North East, understanding when to register, what you can reclaim and how to stay compliant is essential.

This guide explains the key VAT rules for 2026 clearly and without jargon.

What Is VAT?

Value Added Tax (VAT) is a tax charged on most goods and services sold in the UK. Businesses registered for VAT must:

• Charge VAT on taxable sales
• Submit VAT returns to HMRC
• Pay any VAT owed
• Keep digital VAT records under Making Tax Digital (MTD) rules

The standard VAT rate in the UK remains 20%.

What Is the VAT Registration Threshold in 2026?

As of the 2025/26 tax year, the VAT registration threshold is £90,000 in taxable turnover within any rolling 12-month period.

You must register for VAT if:

• Your total taxable turnover exceeds £90,000 in the last 12 months
• You expect your taxable turnover to exceed £90,000 in the next 30 days alone

Taxable turnover includes:

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

It does not include VAT-exempt income.

When Do You Have to Register?

If you exceed the threshold, you must register within 30 days of the end of the month in which you went over the limit.

If you expect to exceed £90,000 within a 30-day period, you must register by the end of that 30-day window.

Your effective date of registration will usually be the first day of the second month after you exceed the threshold.

Failing to register on time can lead to penalties and backdated VAT liabilities.

What Happens If You Don’t Register on Time?

If you exceed the threshold and delay registration:

• HMRC can backdate your VAT registration
• You may owe VAT on past sales
• You may face penalties based on the VAT owed
• Interest can be charged on late payments

The longer the delay, the higher the potential penalty.

Can You Register for VAT Voluntarily?

Yes. You can voluntarily register even if your turnover is below £90,000.

Voluntary registration may be beneficial if:

• You work with VAT-registered clients who can reclaim VAT
• You want to reclaim VAT on business expenses
• You want to appear more established or credible
• You expect to exceed the threshold soon

However, you will need to charge VAT on your sales, which may increase prices for non-VAT-registered customers.

What Can You Reclaim VAT On?

Once VAT-registered, you can reclaim VAT on goods and services purchased for business use.

This commonly includes:

• Equipment and machinery
• Office supplies
• Professional services
• Business software
• Some vehicle expenses (subject to restrictions)
• Commercial rent

You must keep valid VAT invoices and maintain proper digital records.

VAT cannot usually be reclaimed on purely personal expenses.

What VAT Schemes Are Available?

HMRC offers different VAT accounting schemes depending on your business type and turnover.

Standard VAT Accounting
You submit quarterly VAT returns and pay the difference between VAT charged and VAT reclaimed.

Flat Rate Scheme
You pay a fixed percentage of your gross turnover to HMRC. This can simplify accounting but may not suit all businesses.

Annual Accounting Scheme
You submit one VAT return per year and make advance payments during the year.

Choosing the wrong scheme can cost your business money. Reviewing your position regularly is important.

What Is Making Tax Digital (MTD) for VAT?

Most VAT-registered businesses must:

• Keep digital VAT records
• Use MTD-compatible software
• Submit VAT returns electronically

Manual paper-based VAT returns are no longer acceptable for most businesses.

Common VAT Mistakes Small Businesses Make

Some of the most common VAT errors include:

• Missing the rolling 12-month registration threshold
• Incorrectly treating zero-rated and exempt supplies
• Reclaiming VAT without valid invoices
• Using the wrong VAT scheme
• Poor record keeping

Regular review and professional oversight significantly reduce risk.

Do You Need an Accountant for VAT?

VAT becomes more complex as your business grows. An accountant can:

• Monitor your turnover against the threshold
• Advise on the most suitable VAT scheme
• Ensure accurate VAT returns
• Identify legitimate reclaim opportunities
• Reduce the risk of HMRC penalties

For business owners in North Shields and the surrounding areas, proactive VAT management protects cash flow and prevents unexpected tax issues.

Speak to HJ Accountants About VAT

If you’re unsure whether you need to register for VAT, want to review your current scheme, or need help staying compliant, HJ Accountants can provide clear, practical advice tailored to your business.

Contact HJ Accountants today to discuss your VAT obligations and ensure your business remains compliant and efficient.

Call the office on 0191 251 7599 to arrange a consultation or email directly to get started.