Crossing £90,000: registering for VAT as a builder without losing a month of cash

The VAT threshold does not arrive on your year end. It arrives on the last day of whatever month tips your rolling twelve month total over £90,000, and plenty of builders hear about it months later, from an accountant looking backwards at a summer that already happened.

The money is lost in the gap. Your liability for VAT starts on your effective date of registration, which is set by the month you crossed, not by the day HMRC issues your number. Every invoice you sent in between went out without VAT on it, and the VAT on those invoices is still due. The client is not sending a top-up.

This page is the arithmetic: which twelve months count, which day the clock actually starts, what to put on an invoice while you are waiting for the number, why a new build subcontractor often registers before they have to, and whether the Flat Rate Scheme is worth anything to a construction business now that the reverse charge takes most of your sales out of it.

How builders describe the problem

A poster on BuildHub explaining to a homeowner why three quotes for the same extension came back so far apart:

"Another reason for this I forgot about. The turnover threshold for VAT is about £90k. For a one man band, having the materials supplied can help stay under this, as does cash: tut tut but his risk.

For a man + lad + van* it is near to impossible."

saveasteading, 27 July 2024

And in a different thread, on the same forum, the same point put from the trade's side of the fence:

"Unless you are a sole trader, just yourself then it's hard to not breech the limit for registration 90k at the moment."

"Now there is an advantage in keeping below the vat threshold as when doing domestic work it gives you a striaght up 20% advantage over larger firms."

Gus Potter, on BuildHub

Both are describing the same cliff edge from opposite sides. One person supplying labour, with the client buying the materials, can sit under £90,000 for years and undercut every VAT registered firm on domestic work by a fifth. Put a second pair of hands in the van and start buying your own materials, and the threshold stops being a ceiling you might reach one day and becomes a date already in your calendar that you have not worked out yet.

Which is the whole job of this page: work it out before it works you out.

The test is a rolling twelve months, not your accounting year

Schedule 1, paragraph 1(1)(a) of the Value Added Tax Act 1994 sets the test on the value of your taxable supplies "in the period of one year then ending". The period of one year then ending. Not your financial year, not the tax year, not the twelve months your bookkeeping software happens to show you. On the last day of every calendar month you add up the twelve months finishing that day and compare the total with £90,000, the figure that has applied since 1 April 2024.

The reason people miss it is that a rolling total moves for two reasons at once. It goes up by what you invoiced this month, and it goes down by whatever you invoiced in the same month a year ago. A quiet month can still push you over, if the month falling off the back was quieter still.

Here is a shaped year for a two hand outfit doing extensions and loft conversions, with both halves of that movement shown so the number is checkable rather than asserted.

June is the month that does it. £88,100 plus £14,900 less the £9,400 that drops off the back is £93,600, and the threshold is crossed on 30 June 2026.

Notice what a bookkeeper looking at a calendar year would have seen instead. To 31 December 2025 this business turned over £74,300, comfortably clear, and it will report a perfectly ordinary looking year again. The liability happened inside a month that no annual figure puts in front of you.

Two dates, and only one of them is the one that costs you

Crossing produces two deadlines, and they are different distances away.

Tell HMRC within 30 days of the end of the month you went over. Cross on 30 June 2026 and the application is due by 30 July 2026.

Your effective date of registration is the first day of the second month after you go over. Cross on 30 June 2026 and you are a VAT registered business from 1 August 2026, whatever the calendar says about when you got round to applying and whenever the number turns up.

That second date is the one with money attached. From 1 August every standard rated supply you make carries VAT whether or not you charged any. If you invoice £10,000 a month for August, September and October and none of it shows VAT, HMRC does not treat the £30,000 as VAT free. It treats it as VAT inclusive, and takes one sixth: £5,000 out of your own margin, on work already delivered and already paid for.

There is a second way in, and it is faster and less forgiving. Under Schedule 1, paragraph 1(1)(b), if at any point you have reasonable grounds to believe your taxable supplies in the next 30 days alone will exceed £90,000, you register on the spot. Not the next twelve months: the next thirty days. Sign a £96,000 contract on 3 September 2026 that will all be invoiced inside the month and your effective date of registration is 3 September 2026, the day you knew, and the application is due by 2 October. A single large job can register you before you have laid a brick on it, which is exactly the moment to have priced it as a VAT registered business.

There is also a release valve worth knowing about, because a one off spike is a real thing in this trade. If your turnover went over only temporarily and you expect the next twelve months to come in under the deregistration threshold, HMRC will consider a registration "exception", and the registration does not have to happen at all. You have to ask, and you have to ask with figures.

What counts as taxable turnover on a building job

Taxable turnover is the total value of everything you sell that is not exempt or outside the scope of VAT. For a construction business, four things surprise people:

• Zero rated work counts. New build housing is zero rated under VAT Notice 708, and a groundworker doing nothing but new build estates still counts every penny of it towards £90,000.
• Materials count. If you buy the plaster and invoice it on, that value is your turnover. This is exactly what saveasteading was describing: letting the client supply materials keeps the number down, and it also keeps the margin down.
• CIS deductions do not reduce it. If a main contractor pays you £8,000 net after a 20% deduction on £2,500 of labour, your supply is the gross figure on the invoice, not the amount that hit the bank. The CIS deductions you get back are a payment on account of your own tax, not a discount on your turnover.
• Reverse charge work counts. Invoicing a VAT registered main contractor under the domestic reverse charge means you show no VAT to collect, but the supply is still yours and still taxable.

Add all of it, every month, on a rolling twelve.

The new build subcontractor's case for registering early

Voluntary registration is open to anyone under £90,000, and for one specific shape of construction business it is close to free money.

Take a groundworks subcontractor doing new build housing for VAT registered main contractors. Turnover £62,000, well under the threshold, and every penny of it zero rated under Notice 708 because it is the construction of new dwellings. Zero rated supplies sit outside the reverse charge, so the invoice stays zero rated whoever the customer is.

Output tax of nothing, input tax of £7,620, and HMRC pays the difference. Nothing changes on any invoice the customer receives, because zero rated is zero rated either way. That is £7,620 a year that an unregistered version of the same business simply absorbs into its cost of sale.

HMRC will also let a mostly zero rated business apply for exemption from registration once it crosses £90,000, which is worth understanding purely so you can decline it on purpose. Taking exemption is choosing to stop reclaiming. Most new build subcontractors register and take the money instead. Which rate applies to which job, and the evidence to keep on file for it, is the zero rate and 5% guide.

The case runs the other way for a domestic jobbing builder working for homeowners who cannot reclaim anything. There, registering voluntarily adds 20% to what the customer pays or takes a sixth off your margin, and the arithmetic is the 20% advantage Gus Potter was describing.

The month between applying and getting the number

This is the part that catches people who did everything right, and HMRC's own instruction on it is admirably blunt:

"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."

Register for VAT, GOV.UK

So you are liable from your effective date, you cannot show VAT yet, and the answer is to invoice the higher number now and put the paperwork right later.

Worked through on one job. Effective date of registration 1 August 2026. A kitchen extension for a homeowner, £8,400 of labour and materials, invoiced 12 August.

The customer pays nothing further, which is the sentence to put in the email when you send the first one. And if that customer is VAT registered, the reissued invoice is the only thing that lets them reclaim the £1,680, so it is worth doing promptly rather than at your year end.

The version that costs you is the one where you keep invoicing £8,400. Same job, same money in the bank, and £1,400 of it belongs to HMRC.

Two practical notes. Say it in writing before you send the invoice, ideally in the quote, because a customer who was told £8,400 and receives £10,080 with no explanation will phone rather than pay. And keep the reissued invoices numbered against the originals, because that pairing is the whole audit trail for your first return.

The Flat Rate Scheme, and the three rates that decide it

The Flat Rate Scheme is open if you expect VAT taxable turnover of £150,000 or less excluding VAT in the next twelve months. Instead of accounting for output tax and reclaiming input tax, you charge your customers the normal 20% and hand HMRC a fixed percentage of your VAT inclusive turnover, keeping the difference. You reclaim nothing on purchases except a single purchase of capital expenditure goods where the amount, including VAT, is £2,000 or more. There is a 1% discount in your first year as a VAT registered business, so every rate below drops by one point for twelve months.

Three rates matter in construction, and which one you land on is not a choice:

The 16.5% rate was introduced to close the scheme to labour businesses, and it lands squarely on trades that supply skill and very little stock. "Relevant goods" is narrower than the word suggests: VAT Notice 733 excludes vehicle costs including fuel unless you are in the transport sector, food or drink for you or your staff, capital expenditure goods of any value, goods bought to resell or hire out unless that is your main business, goods for disposal such as promotional items, and any services at all. A sparky's van, diesel, insurance, accountant and power tools are every one of them outside the test. Cable and fixings are inside it.

Run it on a domestic electrician turning over £100,000 net, £120,000 including VAT, all to homeowners. Cable, fixings and consumables come to £1,600 a year including VAT. Two per cent of £120,000 is £2,400, so £1,600 does not clear the bar and the rate is 16.5%.

£1,700 a year to file a simpler return. The same business classified as general building at 9.5% would pay £11,400, which is why the classification question is worth ten minutes with your accountant in the year you register rather than a guess in the online application.

Why the reverse charge usually ends the Flat Rate case

Since 1 March 2021 the domestic reverse charge under section 55A of the Value Added Tax Act 1994 has applied to standard and reduced rated construction services between VAT registered businesses where the payment is reportable under CIS. The subcontractor shows no VAT to collect and the customer accounts for it. HMRC's technical guide is explicit about what that does to the scheme:

"Reverse charge supplies are not to be accounted for under the scheme."

VAT reverse charge technical guide, GOV.UK

Flat rate users "exclude the value of those supplies from their Flat Rate Scheme calculation" entirely. That is the sentence that decides it, because the scheme only ever pays for itself out of the spread between the 20% you collect and the flat percentage you hand over. On reverse charge work you collect nothing, so there is no spread, and you still cannot reclaim the input tax on the materials that job consumed.

Take the same electrician, now with 70% of the work going to VAT registered main contractors under CIS.

£4,140 a year, for the same work. The Cash Accounting Scheme goes the same way: HMRC's guide says plainly that you cannot use it for supplies you buy or sell that are subject to the reverse charge.

There is a better mechanism on the other side of that. A subcontractor mostly doing reverse charge work collects no output tax but pays input tax on every merchant run, which puts them in a standing repayment position, and HMRC's own answer is to apply to move to monthly returns through your online VAT account. On quarterly returns, input tax paid in January is claimed on the return for the quarter to 31 March, filed by 7 May. On monthly returns the same money is claimed by 7 March. That is two months of your own cash pulled forward on January's spend. February's moves by a month and March's is claimed on the same 7 May return either way, so across the year the switch pulls your input VAT forward by about a month, on average, every month. The invoice wording that gets you there is in the reverse charge guide.

Registration switches on Making Tax Digital the same day

There is no separate turnover test any more. GOV.UK puts it in one line: "All VAT-registered businesses should now be signed up for Making Tax Digital for VAT. You no longer need to sign up yourself." Digital records, compatible software, and a return due one calendar month and 7 days after the end of each accounting period, which is also the payment deadline. The software question and the dates are in the Making Tax Digital guide, and the MTD countdown puts your next one on a calendar.

Coming back down: £88,000

The threshold you leave by is not the one you came in on. If taxable turnover falls below £88,000 you can ask HMRC to cancel the registration, and you must cancel within 30 days if you stop being eligible altogether, for instance because the business has ceased trading.

Worth doing the same rolling twelve month sum before you ask. A business in a standing repayment position on new build work is being paid to stay registered, and a business selling to VAT registered main contractors under the reverse charge is not charging its customers anything extra by being registered either. The 20% advantage over larger firms only exists on work for people who cannot reclaim.

What it costs

The rolling twelve month total, the effective date it produces and the reissue trail for invoices raised before your number arrives all sit inside your invoicing. There is no monthly subscription. The platform fee is 2.5% of each invoice processed through AEC Stack, so a quiet quarter costs nothing.

Put your last twelve months of invoices in and see which month tips the total over £90,000. If it has already gone by, the next date that matters is 30 days after the end of it. Start with a worked example.