Threshold for VAT Registration: 2026 Update for Drivers Who Employ Staff

The threshold for VAT registration is £90,000 of taxable turnover in any rolling 12 months, and the figure to cancel is £88,000. We found no GOV.UK page showing a different number for 2026/27, so the thresholds did not move this year. What changes from fleet to fleet is which of your receipts count towards that £90,000, and that is where owners with employed or self-employed drivers get caught out.

This guide is for the person who owns several cars, pays a mix of wages and self-employed drivers, and wants to know when the threshold for VAT registration bites. It does not repeat the basics already covered in our complete threshold guide. Instead it shows how to count turnover against payroll cost, line by line.

Key takeaways

• The threshold for VAT registration is £90,000 of taxable turnover, and the deregistration limit is £88,000, per GOV.UK as checked on 30 October 2026.
• Wages, employer National Insurance and pension costs are costs, not sales. They never count towards the threshold and never reduce it either.
• What counts is what you sell: fares you charge as the supplier, or car hire you charge to self-employed drivers, depending on how your contracts work.
• Employment Allowance and VAT are separate systems. Claiming one has no effect on the other.
• Do not split a fleet across companies just to stay under the line without taking advice first.

What is the threshold for VAT registration?

The threshold for VAT registration is the level of taxable turnover at which a UK business must register for VAT. GOV.UK sets it at £90,000 over the last 12 months, or expected within 30 days. It counts sales that are not VAT exempt or out of scope. Costs such as wages do not enter the calculation.

According to GOV.UK's guidance on when to register for VAT, you must register if your total taxable turnover for the last 12 months goes over £90,000, or if you expect it to in the next 30 days. The same page confirms you can register voluntarily below that level.

Has the threshold for VAT registration changed for 2026/27?

No. As of 30 October 2026, GOV.UK still gives £90,000 for registration and £88,000 for cancelling. The current registration figure has applied since 1 April 2024, when the old £85,000 limit was replaced. If you read a 2026 article announcing a new number, check it against GOV.UK before acting.

HMRC's VAT Notice 700/1 supplement lists the registration limit history, showing £85,000 up to 31 March 2024 and £90,000 from 1 April 2024. Its table stops at 2025/26, so for the current year we rely on the live GOV.UK pages quoted in this article. Check the date on any page you use.

What did change around the thresholds in 2026?

The VAT limits stayed put, but other tax limits that sit near them did not. Making Tax Digital for Income Tax began on 6 April 2026 for people with qualifying income above £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028. That is a separate test from the threshold for VAT registration. You can be under £90,000 of VAT turnover and still be caught by Making Tax Digital for Income Tax, or the other way round.

If a VAT-registered fleet owner also trades as a sole trader, both systems apply at once. Our guide to Making Tax Digital steps after crossing the threshold walks through the software side, and our personal tax FAQ covers how the VAT figure sits next to Self Assessment.

What does taxable turnover mean for a fleet with drivers?

Taxable turnover is the total value of what your business sells that is not VAT exempt or outside the scope of VAT. For a fleet owner, that means income earned from the cars: fares you charge as the supplier, or hire charges to drivers who rent a vehicle. Payments to drivers or staff are costs and sit outside the sum.

GOV.UK's list of what counts includes zero-rated, reduced-rated and standard-rated sales, and goods you hire or loan to customers. The full definition is in VAT Notice 700, the VAT guide. The next two sections apply it to the two driver set-ups most fleets run.

How do employed drivers affect the VAT turnover figure?

If your drivers are employees and the business is the one supplying the journeys, the fares your business earns are your taxable turnover. The wages you pay those drivers are a cost. A £60,000 wage bill does not reduce £100,000 of fare income to £40,000 for threshold purposes. The test looks at sales, not what is left after payroll.

This is the most common slip we see. Owners look at profit after wages, feel comfortably under £90,000, and miss the registration date. If your accounts show taxable sales of more than £90,000 over any 12 months, the profit figure is irrelevant to the registration question. Whether your business is the supplier of the journeys, or an agent for the driver, depends on your contracts, so ask us before assuming.

How does a self-employed driver renting your car change the count?

When a self-employed driver rents your car and keeps the fares, those fares are not your sales. Your taxable turnover is the rental income you charge them, and that rental is what you measure against £90,000. The fares the driver earns count towards that driver's own VAT position, not yours.

This can make a large fleet look small for VAT purposes. Twelve cars at a weekly rental produce far less turnover than twelve employed drivers earning fares. Whether HMRC treats the arrangement as genuine self-employment is a separate question. GOV.UK's employment status guidance explains the checking tool, and a wrongly labelled driver creates payroll problems far bigger than any VAT saving.

Illustrative example: counting turnover against payroll

Here is an illustrative example. A small fleet owner runs six cars as a sole trader.

Four cars are driven by employed drivers, and the business collects the fares as supplier. Two cars are rented to self-employed drivers at £260 a week. All figures exclude VAT.

The owner's profit is £15,040, yet taxable turnover is £93,440, which is above the threshold for VAT registration. Suppose the rolling total first passed £90,000 during August 2026. GOV.UK's timing rule then means registering within 30 days of the end of that month, so by 30 September 2026, with an effective date of 1 October 2026. Our VAT calculator lets you test your own totals.

The practical lesson is the gap between the two numbers. Before registration, this owner kept every pound of fare income. After 1 October 2026, VAT is added to the business's standard-rated sales, the business pays that VAT to HMRC and can reclaim VAT on qualifying costs. Which costs qualify, and which scheme suits, needs checking against your own records.

How do you work out your rolling 12-month figure step by step?

Add up your VAT-exclusive taxable sales for the latest 12 complete months, then repeat the sum at the end of every month. If the total is over £90,000, start the registration clock. If you expect a single contract or a batch of new cars to push you over within 30 days, the forward-looking test applies instead.

1. List every income stream the business bills: fares as supplier, car rental, any subcontract work, and any other sales.
2. Remove anything exempt or outside the scope of VAT, and any VAT you added to your invoices.
3. Leave out every cost, including wages, self-employed driver payments, fuel and insurance.
4. Total the last 12 complete months and record the result against the month end.
5. If the total exceeds £90,000, register within 30 days of that month end. The effective date is the first day of the second month after.
6. Separately, ask each month whether you expect to pass £90,000 within the next 30 days, for example after buying more cars with committed contracts.
7. Keep the monthly working. HMRC can ask how you reached the dates you used.

When does the 30-day forward test catch a growing fleet?

The 30-day test catches you when you can already see the next 30 days' taxable sales taking you past £90,000. A new contract or an added vehicle batch can trigger it even if your 12-month total is lower. The effective date is the day you realised, so registration can be dated back to that day.

GOV.UK gives the example of a £100,000 contract arranged on 1 May, with a duty to apply by 30 May and an effective date of 1 May. For a fleet, a similar case is signing a fixed-term contract to supply several cars and drivers. Write down the date you signed, as it is the date HMRC may use.

Does the Employment Allowance affect the threshold for VAT registration?

No. The Employment Allowance reduces your employer Class 1 National Insurance bill; it does not change your VAT turnover or the threshold for VAT registration. GOV.UK says eligible employers can reduce their annual National Insurance liability by up to £10,500. The two systems have separate rules, deadlines and forms.

The GOV.UK Employment Allowance page states the £10,500 figure, and the eligibility page lists the rules. A company with one director cannot claim if that director is the only employee liable for secondary Class 1 National Insurance, and workers within IR35 cannot be included. GOV.UK also says that from April 2025 employers paying more than £100,000 in Class 1 National Insurance liabilities can apply, though the wording is brief, so check it against your own bill.

If you are setting up a payroll for the first time, our step-by-step payroll guide and VAT and payroll requirements guide cover the PAYE side so we do not repeat it here.

When can a small fleet owner cancel VAT registration?

You can ask HMRC to cancel if your taxable turnover falls below £88,000, and you must cancel within 30 days if you stop trading or making taxable supplies. The £2,000 gap between £90,000 and £88,000 stops owners bouncing in and out of registration when income hovers near the line.

The GOV.UK page on cancelling VAT registration sets out both the £88,000 test and the must-cancel cases. If a driver leaves and two cars sit idle, you may fall below it, but cancelling can bring a VAT charge on assets you still hold. Ask before you apply.

What are the common mistakes and the penalty each triggers?

Most fleet errors come from mixing up profit and sales, or from missing a date. Each one below ends with VAT owed from the date you should have registered, and sometimes a penalty or interest. GOV.UK says the penalty depends on the amount owed and how late you are.

For exact penalty amounts, always read the current GOV.UK late-registration guidance. We do not quote percentages here because they depend on behaviour and timing.

Key terms

• Taxable turnover: the total value of your sales that are not VAT exempt or outside the scope of VAT.
• Rolling 12 months: the latest 12 complete months, re-tested each month, not a tax year.
• Effective date of registration: the date HMRC treats you as VAT registered.
• Employment Allowance: a relief against employer Class 1 National Insurance, separate from VAT.
• Secondary Class 1 National Insurance: the employer's National Insurance on employees' earnings.
• PAYE (Pay As You Earn): the system for deducting Income Tax and National Insurance from wages.
• IR35: the off-payroll working rules.
• Making Tax Digital (MTD): HMRC's digital record keeping and reporting rules.

How UK Driver Accountants helps

We are a drivers-only accountancy with fixed fees from £20 a month, independent of any ride-hailing app. For a fleet owner we track the rolling turnover, register you on the right date, file the returns and run the payroll service alongside the VAT service, so the two never trip over each other. If you run more than a handful of cars, see our fleet accounts page and pricing.

Conclusion

The threshold for VAT registration did not change for 2026/27, but your fleet may cross it without anyone telling you. Count sales, not profit, test every month, and keep payroll on its own track. Contact us for a look at your figures before the next month end.

Last reviewed 30 October 2026 by the UK Driver Accountants tax team.

This article is general information and is not personal tax advice. Speak to a qualified accountant about your own circumstances. If HMRC disputes your registration date or opens a penalty enquiry, we recommend professional representation.