VAT registration threshold: zero-rated supplies count, exempt supplies do not
Sunniva runs a business in England and is not registered for VAT. In the 12 months to 31 August 2026 her sales were: £70,000 of standard-rated supplies, £18,000 of zero-rated supplies and £9,000 of exempt supplies. She does not expect her taxable turnover to exceed the threshold in the next 30 days. Assume the VAT registration threshold is £90,000.
Is Sunniva required to register for VAT?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: No, as her taxable turnover of £88,000 (zero-rated included, exempt excluded) is below £90,000, though she may register voluntarily.
THE RULE TO REMEMBER
VAT registration is compulsory when 12-month taxable turnover exceeds the threshold; taxable turnover includes zero-rated supplies but excludes exempt and out-of-scope supplies.
VAT registration threshold: zero-rated supplies count, exempt supplies do not
Registration is compulsory if taxable turnover for the last 12 months goes over the £90,000 threshold, or is expected to exceed it in the next 30 days. HMRC's guidance defines taxable turnover as the total value of everything sold that is not VAT exempt or outside the scope of VAT. It expressly includes zero-rated, reduced-rated and standard-rated goods. Sunniva's taxable turnover is therefore her standard-rated supplies of £70,000 plus her zero-rated supplies of £18,000, a total of £88,000. Her exempt supplies of £9,000 are left out. £88,000 does not exceed £90,000, and she does not expect to go over the threshold in the next 30 days, so she does not have to register. She may still choose to register voluntarily, which could let her recover input tax.
Why B is wrong: Exempt supplies are not part of taxable turnover, so the test is not applied to her total sales.
Why C is wrong: Zero-rated supplies are taxable supplies (at 0%) and count towards the threshold.
Why D is wrong: Making some exempt supplies does not prevent voluntary registration where she also makes taxable supplies.
Why E is wrong: Making zero-rated supplies does not by itself trigger compulsory registration; the turnover test still applies.
A little more practice done.
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