The rolling test, not the annual one
Every month, check the total taxable turnover for the previous 12 months. If at any point that figure goes over £90,000, you have 30 days from the end of that month to notify HMRC. Registration takes effect from the first day of the month after that 30-day window closes.
Common trap: you check at year-end, see your annual figure is £85k, and assume you're safe. But if your last 12 months ran £20k → £85k (a fast-growth year), you may have crossed mid-year. The rolling test catches this; the annual snapshot doesn't.
What counts as taxable turnover
Taxable turnover includes everything that would be standard-rated, reduced-rated, or zero-rated if you were registered. It does NOT include exempt supplies (some insurance, some education, some property), out-of-scope supplies (services to overseas business customers), or sales of capital assets.
For most UK service businesses, "taxable turnover" = "revenue" with no adjustments. For mixed-supply businesses (e.g. running a training school with both VAT-able and exempt courses), the split matters and is worth getting an accountant to confirm.
Voluntary registration: when it makes sense
- Selling B2B: your business customers reclaim the VAT you charge them, so it doesn't increase the price they pay. Meanwhile you reclaim VAT on your inputs.
- Significant input VAT: e.g. a startup with high software, equipment, or service costs, even before revenue. Registering early lets you reclaim.
- Perception: VAT-registered businesses appear more established. For some buyers that matters.
- Don't register voluntarily if: you sell B2C, your inputs have little VAT, and you'd be effectively raising your prices by 20%.
Scheme choice
| Scheme | Best for | Trade-off |
|---|---|---|
| Standard accrual | Most businesses, especially with longer payment terms. | You pay VAT when invoiced, not when paid — cashflow risk. |
| Cash accounting | Up to £1.35m turnover with payment-term risk. | You pay VAT only when customers pay; you only reclaim when you pay suppliers. Cleaner cashflow. |
| Flat rate | Service businesses with very low input VAT. | Killed for most contractors by the 16.5% 'limited-cost-business' rate. Worth modelling, rarely wins. |
| Annual accounting | Stable, predictable businesses. | One return per year, monthly/quarterly payments on account. Lower admin, higher reconciliation risk. |
How the practice health check applies this rule
We compute 12-month rolling turnover from your FreeAgent invoices (the dated_on field for the last 365 days), compare against the £90,000 threshold, and emit one of three findings: 'well below' (good), 'past halfway' (watch), 'within 15%' (issue). If you're already VAT-registered, we surface the count of returns on file and your scheme position (Standard cash accounting is what FreeAgent's free tier defaults to).