Reaching the VAT threshold while you are in MTD for Income Tax

acrenvo.com/guides/mtd-reaching-the-vat-threshold, last reviewed 25 October 2026

Aisha is fictional, but plenty of sole traders will see themselves in her. She is a self-employed photographer who also lets out a small flat, and she already sends quarterly updates under Making Tax Digital (MTD) for Income Tax. Her bookings have grown steadily, and she has started to wonder when VAT will catch up with her, and what she will have to change when it does. This guide walks through when GOV.UK says you must register, how MTD for VAT starts once you are registered, and what the threshold means for your Income Tax records.

When you must register for VAT

GOV.UK currently gives the VAT threshold as £90,000, and it sets out two tests. You must register if either:

• your total taxable turnover for the last 12 months goes over £90,000 (the VAT threshold)
• you expect your taxable turnover to go over £90,000 in the next 30 days

Both tests use your taxable turnover rather than your profit, and they look at a rolling period rather than the tax year, so it is worth checking the running total as the months go by. Taxable turnover is the total value of everything you sell that is not VAT exempt or ‘out of scope’ goods and services. You do not have to register if you only sell VAT exempt or ‘out of scope’ goods and services.

Registering is also open to people below the line. You can choose to register for VAT if your turnover is less than £90,000 (‘voluntary registration’).

If you went over the threshold in the last 12 months

This is the test most growing businesses meet first, because it looks back at what has already happened. You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.

If you expect to go over in the next 30 days

The second test looks forward instead, and it catches a single large piece of work that will tip you over on its own. You have to register by the end of that 30-day period. Your effective date of registration is the date you realised, not the date your turnover went over the threshold.

If you expect the rise to be short-lived, there is an alternative to registering. You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily. Whichever applies, it pays to act on time.

How MTD for VAT starts once you are registered

You do not need a separate step to join MTD for VAT, because GOV.UK says that registering takes care of it. HMRC will sign up your business to Making Tax Digital for VAT, unless it is exempt, or you’ve applied for an exemption. You must sign up for a VAT online account as soon as you receive your VAT registration number.

There is a short gap between applying and being able to charge VAT, and GOV.UK covers both halves of it. You cannot include VAT on your invoices until you get your VAT registration number, but you can increase your prices to account for the VAT you’ll need to pay to HMRC. On records, if you have recently registered for VAT, you should wait for HMRC to confirm your registration before downloading compatible software. Keep paper version of the records while you wait.

That waiting period is a good time to look at whether the software you use for Income Tax can also file your VAT Returns. The guide to using one product for both lists which of the products we compare say they do, and the guide to MTD for VAT and MTD for Income Tax explains what VAT Returns involve.

What changes in your MTD for Income Tax records

The same figure appears in the Income Tax rules. If you chose simpler categorisation because an income source’s turnover was below the VAT threshold, reaching it changes that choice. If your turnover reaches £90,000, you will need to categorise all digital records for that income source in full before you can send your quarterly update, including those:

• from the beginning of the current tax year
• in the following tax year

The test is applied to each income source separately, which matters for someone like Aisha with both a business and a letting. If you have more than one source of self-employment or UK property income, you can only use simpler categorisation for both income sources if your turnover is below the VAT threshold for each income source. If you’re unsure if your turnover will reach £90,000, you should categorise your digital records in full detail. The guide to simpler MTD record keeping covers the rest of those options.

Once you are registered, VAT can also touch the income figure HMRC uses to decide whether you need MTD for Income Tax. Under the heading ‘If you use the cash basis and are VAT registered’, GOV.UK says: You can choose to include or exclude VAT when you declare your business income. If you include it, then it will count towards your qualifying income.

If your turnover falls again

Registration does not have to be permanent if your business shrinks. If your taxable turnover falls below £88,000 you can ask HM Revenue and Customs (HMRC) to cancel your registration, unless you and your business are based outside the UK and you supply goods or services to the UK (or expect to in the next 30 days). GOV.UK’s VAT Notice adds a point about your records if you do. If you deregister from VAT, you no longer need to keep digital records in functional compatible software. However, you must still retain your VAT records for the required period.

Questions about reaching the VAT threshold

You may also find this page useful: Selling through online platforms and MTD for Income Tax.