Does my garage need to register for VAT?

A quarter of the workshops we see are not VAT registered, and most of them have never sat down and worked out whether they should be. They are not doing anything wrong. The threshold is high enough that a one or two bay garage can run for years underneath it. But "I have not thought about it" stops being a safe position the moment a good year pushes you over, and the way the test works means you can cross it without noticing until it has already happened.

This is the version I wish someone had written for me: what the threshold actually measures, the one quirk that matters specifically to garages, and when registering before you have to is the right call.

This is general information and not tax advice. Your accountant knows your numbers.

The number is £90,000, and it has not moved

You must register for VAT when your VAT-taxable turnover goes over £90,000. That figure has been £90,000 since 1 April 2024, and it is unchanged for 2026. The deregistration threshold, the point at which you can come back out, is £88,000.

Two things about that number catch people out.

It is turnover, not profit. It is everything you sell, before a single cost comes off. A workshop billing £110,000 a year and clearing £22,000 is over the threshold, and the £22,000 has nothing to do with it.

It is a rolling 12 months, not your financial year. This is the one that bites. You are not checking on 5 April. You are checking every month, looking back at the previous twelve, in a window that moves. A good summer can put you over in August on a year that finishes well under.

There is a second test people forget: if you expect to go over £90,000 in the next 30 days alone, you register immediately. That one is rare in a workshop, but a fleet contract landing can do it.

The MOT quirk, which is genuinely useful

Here is the bit that is specific to garages and worth knowing.

A statutory MOT test fee, charged at cost by an approved test station, is outside the scope of VAT. It is not zero-rated and it is not exempt, it is outside the scope entirely, and that means it does not count towards your £90,000.

For a workshop doing a lot of tests, that is not a rounding error. Two thousand MOTs a year at £45 is £90,000 of money through the till that does not touch the threshold at all.

The condition matters though. It only holds while you charge the fee at cost, up to the statutory maximum. The moment you mark it up, the markup becomes standard-rated and counts. So if you buy in tests from a neighbouring station at £40 and charge the customer £54.85, the £14.85 is taxable turnover.

Get this wrong in either direction and it is expensive. Treat a marked-up fee as outside the scope and you understate your turnover. Treat an at-cost fee as taxable and you may register a year earlier than you needed to.

What to do if you are near the line

Work out your rolling twelve on the first of every month. It takes five minutes if your invoicing is in one place and it takes an afternoon if it is in a drawer, which is most of the argument for keeping it in one place.

If you are within about £10,000 of the threshold, you are close enough that a single good month decides it. That is the point to have the conversation with your accountant rather than after.

If you have already gone over, register within 30 days of the end of the month you crossed in. The painful part is that you owe the VAT from the date registration should have started, whether or not you charged it to anyone. You cannot go back and re-invoice sixty customers, so it comes out of your margin, and there is a penalty on top based on how late you were and how careless HMRC thinks you were being.

When registering early is the right move

Most people assume registering is something you delay as long as possible. For a retail workshop, that instinct is broadly right. For some garages it is plainly wrong.

Register early if your customers reclaim VAT. Fleet work, trade work, bodyshop subcontract, dealer prep. Those customers do not care about your VAT because they claim it straight back. Meanwhile you start reclaiming on parts, consumables, tooling, rent, diagnostic subscriptions and the van. That is a real margin improvement with no downside to your customer.

Stay out as long as you can if you are retail. A private customer cannot reclaim anything. The day you register, either your prices go up 20 percent or you absorb it and your margin drops 20 percent. Neither is fun, and it is the single biggest reason a busy retail garage hovers just under the line on purpose.

Watch out for the trap in between. If you are mostly retail but growing, the worst place to be is £85,000 with no plan. You are one good month from a 20 percent price rise you have not prepared your customers for. Better to decide in advance which it is going to be, and when.

A middle path worth asking your accountant about is the Flat Rate Scheme, which can suit a small workshop with low reclaimable costs. It is not automatically better and it has been narrowed over the years, but it is worth an hour of somebody's time before you assume standard VAT accounting is the only option.

The part that is actually about your software

Whatever you decide, the setting has to be right before you raise the invoice, not after.

If your system defaults to adding 20 percent and you are not registered, every invoice you send is wrong and your customers are paying tax you are not collecting for anyone. If you are registered and it is set to zero, you are the one absorbing it. Invoices already issued keep the treatment they were issued with, so this is not something you fix retrospectively with a settings change.

It is one question, asked once, and it decides every bill you send after it. Worth five minutes.

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Sources: the £90,000 registration and £88,000 deregistration thresholds are HMRC's published figures, unchanged from 1 April 2024 through 2026. The MOT fee treatment follows HMRC's guidance on statutory fees charged at cost by approved test stations. Check both with your accountant against your own numbers before acting.