Image by Saoirse Delahunt
The VAT registration threshold moved to £90,000 of taxable turnover on 1 April 2024, and HMRC estimated that it kept 3.2 million small UK businesses out of VAT.
Staying under that line does not keep a new business clear of the tax. A founder usually pays VAT before the first sale, in the price of a laptop and often in software and early advertising. Whether any of it comes back, and how much cash the business has to find at the start, depends on what it sells and to whom.
A drop shipper meets VAT through its stock and a freelance web designer through what it charges clients, while an Amazon affiliate’s commission may fall outside it altogether. An online casino pays VAT on nearly everything it buys, usually without getting it back, and needs cash for its winners from the first week.
When registration becomes compulsory
A business must register once its taxable turnover for the last 12 months goes over £90,000, or when it expects to pass that figure in the next 30 days alone. A total that crosses the line during October 2026 will mean registering by 30 November, effective from 1 December, and a late registrant must pay VAT on sales made since the date it should have registered.
Below the threshold, registration is voluntary. Either way, Notice 700/1 lets a new registrant reclaim VAT, subject to conditions, on goods bought up to four years earlier that it has not used up or sold and on services from the previous six months.
| Business model | VAT position | Effect on start-up cash |
| Drop shipping | Most goods taxed at 20%; stock from abroad brings VAT at sale or import | Import VAT paid before registering is lost on stock already sold; registered importers can postpone it |
| Online casino | Gaming normally exempt; VAT on related costs not normally recoverable | Costs budgeted with VAT included, plus cash held back for winners |
| Freelance web design | 20% on UK work once registered; overseas business clients outside the scope | Registration mainly raises the cost to clients who cannot reclaim VAT |
| Amazon affiliate | Commission from a Luxembourg company, probably outside the scope of UK VAT | Nothing to charge; voluntary registration can recover VAT on equipment |
For a drop shipper, VAT depends on where the stock starts
When a UK wholesaler posts the stock to UK customers, each order is an ordinary domestic sale, taxed at 20% for most products once the seller registers. Registration eats into the margin unless the shop raises prices, because VAT makes up one sixth of a VAT-inclusive price. A £24 lamp still sold for £24 after registration leaves the shop £20, and the other £4 goes to HMRC, less the VAT on the wholesaler’s invoice.
Stock sent from abroad straight to buyers in Great Britain comes under a £135 rule that looks at the whole consignment, so three £50 items packed together count as £150 and are over the limit. Within it, an online marketplace that handles the sale becomes liable for the VAT, although HMRC’s definition leaves out a business that only processes payments or only lists goods.
Consignments over £135 go through the normal import rules. A drop shipper that imports before registering pays that import VAT up front, and because the goods go straight to customers, none of it qualifies for the later pre-registration claim, which covers only goods still on hand. Once registered, it can use postponed VAT accounting to declare and reclaim import VAT on the same return, with no approval needed.
Paying winners from the first week
Of these businesses, only the casino can owe a customer more than the customer paid in. A win credited to a player’s account is the player’s to withdraw, and while a site has few customers, one large win can be bigger than everything it took from the others.
How much cash that calls for depends on how long a site could keep winners waiting. The reviewers behind gambling.com’s UK best payout casino page tested payment methods at licensed sites, checking how quickly each processed a withdrawal and when the money reached their own accounts. Tests like those can be run on a new site from its opening day, and holding payouts back until fresh deposits arrived would show in them, so the cash must be ready before trading begins: start-up capital that earns nothing.
Remote Gaming Duty, charged at 40% since 1 April 2026, offers no cushion for a bad start. Under Excise Notice 455a, a three-month accounting period in which prizes exceed what players paid to play brings no duty and no refund, only a loss carried forward, and nothing is repaid on a loss still unused when the business stops trading. Early losses come straight out of the founder’s money.
A casino’s customers have to be 18 or over, and each gambling website the Gambling Commission regulates must warn that underage gambling is an offence and require customers to affirm they are old enough. Under the Commission’s licence conditions, operators must also give customers ready access to information on getting help with problem gambling. The National Gambling Helpline, 0808 8020 133, covers England and Scotland, while the NHS Wales gambling helpline, 0808 2819 265, covers Wales. A call to either is free and answered whatever the time.
Exempt from VAT, and paying it anyway
The exemption covers the casino’s takings, not its bills. HMRC’s notice on betting, gaming and lotteries states that providing facilities for playing games of chance is normally exempt, under Group 4 of Schedule 9 to the VAT Act 1994, and that a business cannot normally deduct input tax on costs that relate to its exempt supplies.
That turns VAT into a running cost. If a UK software firm bills £10,000 a month for the games platform, the invoice arrives as £12,000, and the casino will usually have to absorb the extra £2,000, which a registered drop shipper or designer would reclaim.
Buying from abroad does not avoid the charge. Most services from overseas suppliers fall under the reverse charge, and Notice 741A says a business that cannot attribute that input tax to taxable supplies, because it makes exempt ones, ends up paying VAT at the UK rate. The notice adds that such purchases count toward the £90,000 threshold and can force registration even on a business making no taxable supplies, so a casino buying games and advertising from abroad will normally pay 20% with nothing to set against it.
Design clients and the extra 20%
For a freelance web designer, VAT is mostly a question of price. A VAT-registered client can normally reclaim the 20% on a designer’s bill, so the designer’s registration costs that client nothing, but for a small firm under the threshold or a private customer the same work costs a fifth more unless the designer cuts the price.
Clients abroad change the count. Under the general rule in Notice 741A, web design for a firm in Dublin or Toronto is supplied where that customer belongs, which puts it outside the scope of UK VAT and out of the £90,000 total, and HMRC expects the designer to keep commercial evidence that the client is in business.
Once registered, a designer can simplify its returns through the Flat Rate Scheme, open to businesses expecting taxable turnover of £150,000 or less excluding VAT. Members pay HMRC a fixed percentage of VAT-inclusive turnover and give up reclaiming VAT on purchases, apart from a single capital purchase of £2,000 or more including VAT. A business spending less than 2% of turnover, or under £1,000 a year, on goods pays the limited cost rate of 16.5%.
Notice 733 treats downloaded software and advertising as services and a laptop as capital expenditure, so a designer will usually pay that 16.5%. On a £2,500 job invoiced at £3,000 with VAT, that means £495 to HMRC out of the £500 charged, or £465 in the first year of registration, when the rate is one percentage point lower. The scheme saves bookkeeping more than money, and a £1,200 laptop bought while on it brings no VAT back.
Commission paid from Luxembourg
Amazon runs its UK affiliate programme through a Luxembourg company. Its operating agreement, updated on 15 October 2025, names Amazon Europe Core S.à r.l. as the party for amazon.co.uk, applies Luxembourg law and notes in its tax schedule that an associate established in Luxembourg may be legally obliged to charge Amazon VAT.
On the face of the contract, a UK associate is supplying a business customer that belongs in Luxembourg, so the rule that covers the designer’s Dublin client would put the commission outside the scope of UK VAT. It would then add nothing to the £90,000 count and carry no VAT to charge.
The catch is on the cost side. An affiliate still buys a laptop, software and hosting, and while it stays unregistered the VAT in those prices is a cost. Notice 700/1 allows voluntary registration for a UK business whose supplies all go abroad, provided they would be taxable in the UK and it buys taxable supplies from UK VAT-registered firms or imports goods.
Notice 741A allows recovery of input tax linked to supplies made outside the UK that would be taxable here, so a registered affiliate can reclaim VAT on its equipment and other UK purchases, £200 on a £1,200 laptop bought after registration. It must then file returns, normally every three months, through software compatible with Making Tax Digital unless exempt.
Adding up a sole trader’s turnover
A sole trader running two of these businesses will find that VAT counts them together. HMRC’s registration manual says it is the person rather than the business that is registered, so a trader must take all business activities into account, as the High Court confirmed in the 1974 Glassborow case.
Take a designer who, over 12 months, bills £60,000 to UK clients and makes £35,000 of taxable sales through a drop-shipping shop. Neither side goes over £90,000 alone, but together they come to £95,000, so that person will have to register and account for VAT on the taxable sales of both. On the Flat Rate Scheme, Notice 733 would then require one percentage, set by the main activity, across all turnover unless the limited cost rate applies.
Budget 2025 kept registration at £90,000 and deregistration at £88,000 for April 2026, and the lower figure sets the test for a temporary spike. Where one large contract pushes the total over, the trader can apply for an exception by showing HMRC that taxable supplies in the next 12 months will not go over £88,000. A business that is still growing will struggle to show that.