Have you temporarily exceeded the £90,000 VAT threshold? When can you apply for an Exception from Registration?

A temporary breach does not always lead to compulsory VAT registration. But “I did not mean to” and “it happened by mistake” are not tax arguments

A practical guide for self-employed individuals, CIS subcontractors, Limited Companies and small businesses in the UK

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For many small businesses, the VAT threshold is not exceeded as part of a deliberate strategy. One unusually successful month, the simultaneous completion of two projects, a one-off contract or a larger-than-usual invoice may be enough.

A subcontractor whose annual turnover is normally around £70,000 may receive a significant project. A small construction company may complete several jobs during the same period. At the end of the month, the rolling 12-month calculation shows £92,000 or £95,000.

The first reaction is often:

“I only exceeded the threshold once. Can I avoid VAT registration?”

Sometimes, the answer may be yes. But not simply because the breach was accidental or because the owner does not want to become VAT registered.

The official procedure is called Exception from Registration. To obtain it, the business must satisfy HMRC that the threshold breach was temporary and that its taxable supplies during the following 12 months will not exceed the deregistration threshold, currently £88,000.

The exception must be formally requested and approved. It does not apply automatically.
 

The £90,000 threshold does not reset in April

One of the most common mistakes is checking turnover only at the end of the tax year, at the company’s financial year-end or when the annual accounts are prepared.

The VAT rules work differently.

A business must monitor its taxable turnover over a continuous 12-month period. The calculation moves forward each month: the newest month enters the calculation, while the oldest month drops out.

Compulsory registration arises when total taxable turnover for the previous 12 months is more than £90,000. Exactly £90,000 is not above the threshold; £90,001 is. The current deregistration threshold is £88,000.

This means the threshold does not reset:

• on 6 April;

• on 1 January;

• at the start of the company’s financial year;

• or after the tax return has been submitted.

Example

At 31 August 2026, taxable turnover for the period from 1 September 2025 to 31 August 2026 reaches £93,500.

The business would normally need to notify HMRC within 30 days of the end of the month in which the threshold was exceeded. In this example, the notification deadline would be 30 September, and the effective date of registration would normally be 1 October.

The fact that the annual accounts end in December, or that the Self Assessment return will be prepared several months later, does not change the VAT obligation.

DCTaxAgent Insight

The VAT threshold must be monitored in real time. If the breach is discovered only when the accounts are prepared, the problem may already have existed for several months.
 

What does VAT taxable turnover mean?

The VAT threshold is not calculated using profit or the amount left in the bank after expenses have been paid.

Taxable turnover is the total value of taxable supplies made by the business in the UK. It generally includes supplies that would be subject to the standard rate, reduced rate or zero rate of VAT.

Exempt supplies are not included. The sale of capital assets such as equipment, vehicles or buildings is also normally excluded, although special rules may apply to certain property and land transactions.

You cannot reduce taxable turnover by deducting purchased materials, salaries, subcontractor payments, fuel, rent, tools or other business expenses.

Those costs may reduce accounting and taxable profit. They do not automatically reduce the value of supplies made to customers for the VAT registration test.

A business may have turnover of £95,000 but profit of only £20,000. The threshold is tested using the relevant turnover, not the profit.
 

The CIS trap: the amount reaching your bank account is not your VAT turnover

This is one of the most important issues for construction subcontractors.

A subcontractor may issue an invoice for £10,000 but receive only £8,000 into the bank account after a £2,000 CIS deduction. If the subcontractor looks only at the bank statements, they may incorrectly conclude that turnover is £8,000.

A CIS deduction is an amount withheld and paid to HMRC on account of the subcontractor’s tax liabilities. It does not reduce the value of the service provided to the customer.

When monitoring the VAT threshold, the business must consider the value of the taxable supply before the CIS deduction, rather than only the net payment received into the bank account.

HMRC confirms that the standard CIS rates are generally:

• 20% for registered subcontractors;

• 30% for unregistered subcontractors;

• and 0% for subcontractors with gross payment status.

It is important not to confuse two separate calculations.

When calculating a CIS deduction, the contractor may exclude certain materials and other qualifying amounts from the amount subject to deduction. For the VAT threshold, however, the analysis concerns the value of the taxable supply made to the customer.

The fact that certain materials were excluded from the CIS deduction does not automatically mean that those amounts should also be removed from VAT taxable turnover.

If you invoiced £10,000 and received £8,000 after the CIS deduction, your relevant taxable turnover does not automatically become £8,000.
 

What is an Exception from Registration?

Exception from Registration is a discretionary exception under which HMRC may decide not to register a business that has temporarily exceeded the VAT threshold under the backward-looking 12-month test.

For HMRC to consider the request, two conditions must be satisfied at the same time:

The business must have exceeded the registration threshold during the previous 12 months, and the available evidence must show that taxable supplies during the following 12 months will not exceed the deregistration threshold, currently £88,000.

It is not sufficient for the forecast to show £89,000, or merely to show that turnover will fall back below £90,000.

For an Exception from Registration, the future test is based on the £88,000 deregistration threshold, not the £90,000 registration threshold.
 

“Exceptional circumstances” is not the legal test

In commercial discussions, the procedure is sometimes described as applying where there are “exceptional circumstances”. That expression may create the impression that there must have been a dramatic event, emergency, accident or wholly unusual situation.

HMRC’s test is more precise.

The main question is not whether the event was sufficiently “exceptional”, but whether the business can demonstrate credibly that the threshold breach was temporary and that taxable supplies during the following 12 months will remain below £88,000.

A one-off contract may support the application. The completion of a non-recurring project, the anticipated loss of a client or a return to the business’s normal level of activity may also be relevant.

However, none of these arguments guarantees approval.

HMRC will analyse the figures, contracts and commercial information available, not merely the description used by the business owner.
 

A case where an Exception from Registration may be justified

A construction company normally generates taxable turnover of approximately £68,000 to £72,000 a year.

The company receives a one-off project worth £25,000 that does not form part of its normal recurring activity. Once the project is completed, rolling turnover reaches £94,000.

The contract has ended. The customer confirms that there will be no further work. The company has no comparable projects confirmed, and its order book and realistic forecast for the following 12 months show taxable supplies of £74,000.

In these circumstances, there may be a reasonable basis for requesting the exception.

However, stating that “it was a one-off job” is not enough.

The position should be supported by the project contract, issued invoices, correspondence with the customer, the business’s historical turnover and a monthly forecast explaining why future income will return below £88,000.
 

A case where HMRC may refuse

A subcontractor reaches taxable turnover of £93,000 and says the threshold was exceeded accidentally.

However, the analysis shows that income has increased consistently during the previous six months. The subcontractor continues to work for the same contractors, has confirmed projects for the months ahead and expects taxable supplies of approximately £105,000 during the following 12 months.

In this situation, the fact that the subcontractor did not intend to exceed the threshold does not change HMRC’s analysis.

An accidental breach is not necessarily a temporary breach.

HMRC does not assess whether the owner wants to become VAT registered. It considers whether the business meets the legal conditions for remaining unregistered.
 

The next-30-days rule changes the position completely

There are two separate tests for compulsory VAT registration.

The first is the backward-looking test: taxable turnover during the previous 12 months has exceeded £90,000.

The second is the forward-looking test: the business realises that taxable turnover during the next 30 days, considered as a separate period, will exceed £90,000.

Exception from Registration may be available where the obligation arises under the backward-looking test.

It is not available where the business falls within the forward-looking 30-day rule.

Example

On 1 August, a company signs a contract worth £100,000 that will be carried out during the following 30 days.

Even if the contract is a one-off and the company does not expect any similar projects afterwards, the 30-day rule may create an immediate registration obligation.

In such a case, the effective date of registration is the date on which the company realised that it would exceed the threshold, not the date on which the invoice was issued or payment was received.

The registration application must be made by the end of that 30-day period.

This is a technical distinction, but it may have a significant financial impact.
 

“I was above the threshold for only one month” does not solve the problem

Some business owners notice that turnover exceeded £90,000 at the end of one month, but that the following month an older high-turnover period drops out of the rolling calculation and turnover falls below the threshold again.

They assume that the obligation has disappeared.

That is not correct.

Once the conditions for compulsory registration have been met, the business must either register or apply for and obtain an Exception from Registration.

The fact that turnover later falls below the threshold does not automatically remove the obligation that arose earlier.

HMRC may register the business from the date on which it became liable if the exception is not requested or if the request is refused.
 

What must the forecast demonstrate?

The forecast should not be an optimistic figure created simply to arrive conveniently at £87,900.

It must represent a reasonable commercial estimate based on the information available when the registration obligation arose.

In practice, a credible evidence file should include:

• the monthly taxable-turnover calculation for the previous period;

• a precise explanation of the threshold breach;

• the contracts and invoices that caused the temporary increase;

• evidence that the one-off project has ended;

• the current order book;

• confirmed future work;

• and a monthly forecast for the following 12 months.

The forecast should also explain the assumptions used.

If estimated income is significantly lower than in the previous months, the business must explain why. For example, a contract may have ended, a client may have been lost, business capacity may have reduced, a project may not be repeated or the activity may be seasonal.

HMRC requires the business to demonstrate that future taxable supplies will not exceed the deregistration threshold. The forecast and supporting commercial documents must therefore tell the same story.

DCTaxAgent Insight

A good forecast is not one that merely produces the desired number. It is one that can be explained and defended using the commercial information available when the threshold was exceeded.
 

How is the application submitted?

At the date of this article, an Exception from Registration cannot be requested through the standard online VAT registration service.

The business must contact HMRC by telephone and request form VAT1, clearly stating that it wishes to apply for an Exception from Registration.

HMRC will send VAT1 together with form VAT5EXC. Both forms must be completed and returned before the request can be considered.

The exception application must be made in writing.

VAT1 must be completed in full, even where the business believes that the exception should be approved. If HMRC refuses the request, the information supplied on VAT1 may be used to register the business and issue a VAT registration number.

HMRC states that it will normally communicate its decision within up to 40 working days after receiving the application.

The business should retain copies of the forms, the covering letter, all supporting documents and proof of posting.
 

When must action be taken?

If rolling taxable turnover has exceeded £90,000, the business must act immediately.

Under the backward-looking test, the normal notification deadline is 30 days from the end of the month in which the threshold was exceeded.

The effective date of registration is generally the first day of the second month following the month in which the threshold was breached.

The exception request should be submitted as early as possible, together with a full explanation and supporting evidence.

HMRC warns that if it is not satisfied, it will register the business from the date on which it became liable and require VAT to be accounted for from that date.

It is not prudent to continue trading for several months on the assumption that the request will be approved.
 

Can the exception be requested retrospectively?

Yes. HMRC has discretion to consider a retrospective Exception from Registration request.

However, the test is strict.

HMRC considers the information that existed on the date when the business should have registered. A favourable change that occurred later does not automatically prove that the exception should have been granted at the original date.

Example

At 31 March, a business exceeds the threshold because of a one-off project that has already been completed.

At that time, contracts, correspondence and a realistic forecast already exist showing taxable supplies of £72,000 for the following 12 months.

The business discovers the problem in June.

HMRC may consider retrospectively the information that existed in March and decide that the exception would have been justified.

The position is different if the business had confirmed contracts in March indicating turnover of £100,000, but a customer cancelled the work in May.

The event in May does not necessarily change what it was reasonable to expect in March.
 

What happens if HMRC refuses the request?

If HMRC refuses the Exception from Registration, the business may be registered from the date on which it became liable.

From that date, VAT must be calculated on taxable supplies, even if the business did not add VAT to its invoices and did not collect it separately from customers.

In the case of late registration, HMRC may require payment of VAT from the correct registration date and may also apply a penalty, depending on the length of the delay and the amount involved.

This risk must be analysed before the application is submitted.

Where the business works with other VAT-registered companies, it may be possible to correct certain invoices and recover the additional VAT commercially from customers.

Where the business works with homeowners, private individuals or customers who refuse to pay the difference, the VAT may have to be funded from the price already agreed, directly reducing the profit margin.

A weak application does not create only an administrative problem. It may create a VAT liability that must be financed from the business’s cash flow.
 

If HMRC approves the exception, the calculation does not start again from zero

Approval of an Exception from Registration resolves the particular obligation identified at that time.

It does not provide permanent protection and does not mean that the business will never have to register.

HMRC requires taxable supplies to continue to be monitored every month. If the business exceeds the threshold again, it must register or make a new exception request, provided the conditions are again satisfied.

The rolling 12-month calculation continues. Previous months are not erased simply because an exception was approved.
 

Mistakes that can turn a temporary breach into a large liability

Checking turnover only once a year. The VAT threshold must be monitored monthly, not only when annual accounts are prepared.

Confusing turnover with profit. Expenses may reduce profit, but they do not automatically reduce taxable supplies.

Using net amounts after CIS. A CIS deduction does not reduce the value of the service supplied and must not be confused with VAT turnover.

Deducting materials and subcontractors. These are business costs, not automatic reductions from taxable turnover.

Assuming that a one-off project guarantees approval. A unique contract may support the request, but the forecast for the following 12 months remains decisive.

Using the wrong threshold in the forecast. For an Exception from Registration, the business must demonstrate that taxable supplies will not exceed £88,000, not merely that they will fall below £90,000.

Confusing exception with exemption. Exception from Registration relates to a temporary threshold breach. Exemption from Registration is a different procedure, generally relevant where all or most supplies are zero-rated.
 

Is VAT registration always negative?

No.

For a business that mainly works with other VAT-registered companies, the commercial impact may be easier to manage because customers may be able to recover the VAT under the normal rules.

Registration may also allow the business to recover input VAT on certain eligible purchases and expenses.

The position is different for businesses that work directly with homeowners or final consumers.

If the price must be increased by VAT, the business may become less competitive. If the final price cannot be increased, the margin may fall.

The objective should therefore not be to avoid VAT registration at any cost.

The correct objective is to identify the obligation on time, prepare a strong application where the exception is genuinely justified and manage registration professionally where it is unavoidable.
 

What should you do immediately if you have exceeded £90,000?

The first step is to reconstruct taxable turnover month by month.

The business should not automatically use the total amount received into the bank account, the net figure after CIS or turnover for a single tax year.

It must identify the first month in which the threshold was exceeded, determine whether the obligation arose under the backward-looking test or the forward-looking 30-day test and establish the correct effective date of registration.

A realistic forecast for the following 12 months must then be prepared, and the business must assess whether the forecast can credibly be supported below £88,000.

At the same time, the financial risk must be calculated in case HMRC refuses the request and registers the business retrospectively.

Only after this analysis can a responsible decision be made between VAT registration and an Exception from Registration.
 

Conclusion

Temporarily exceeding the VAT threshold does not automatically mean that a business must remain VAT registered.

However, the fact that the threshold was exceeded “by mistake” does not remove the obligation.

An Exception from Registration may be granted only where the breach arises under the previous-12-month test and the business can demonstrate that taxable supplies during the following 12 months will not exceed the £88,000 deregistration threshold.

HMRC does not approve intentions. It analyses forecasts, contracts, order books, trading history and the documents that existed when the threshold was exceeded.

The essential rule is simple:

Do not wait for the annual accounts before checking the VAT threshold. Monitor taxable turnover every month and act immediately when the threshold is exceeded.
 

How DCTaxAgent can help

DCTaxAgent can assist self-employed individuals, CIS subcontractors and Limited Companies in the UK with:

• checking rolling taxable turnover;

• identifying the date on which the threshold was exceeded;

• separating taxable income from exempt or out-of-scope income;

• preparing the forecast for the following 12 months;

• and organising the documents required for an Exception from Registration.

We can also support the business with VAT registration, Making Tax Digital, bookkeeping, VAT Returns, analysis of possible retrospective registration and the preparation of records for HMRC.

If you have exceeded the threshold or are approaching £90,000, the position should be reviewed before an administrative delay becomes a tax liability.

WhatsApp: 07587 532646

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Disclaimer

This article is provided for general information and educational purposes only. It does not constitute personalised tax advice, legal advice or any guarantee that HMRC will approve an Exception from Registration request.

The applicable rules and treatment depend on the business structure, the nature of the supplies, the exact date on which the threshold was exceeded, the commercial information available at that time and the genuine forecast for the following 12 months.

Before requesting the exception, issuing invoices or deciding that registration is not required, speak to an accountant or tax adviser who can review the complete circumstances.