VAT threshold after going limited

Short answer: yes. When a sole trader who is not VAT registered moves the business into a limited company, the company starts with a clean slate for the VAT threshold. The exception is a sole trader who was already registered, or who had gone over the threshold and should have been. In that case the company must register from day one.

The threshold itself is the same for both. A limited company does not have to register for VAT just because it is a company.

A change coming in October 2027: Amazon, eBay and other marketplaces will start deducting VAT from UK sellers' sales and paying it straight to HMRC. It covers every VAT registered seller, plus unregistered sellers with more than £90,000 of sales on a single marketplace. Sales through your own website are not covered. Our guide to marketplace VAT from October 2027 explains what it means for your payouts.

Does a limited company have to register for VAT?

Only if its taxable sales go over the threshold, which is £90,000 at the moment. HMRC applies the same test to sole traders and limited companies: you must register if your taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. Both tests are set out in the registration section of our ecommerce VAT guide.

For marketplace sellers, taxable turnover means gross sales before fees, not what reaches your bank account. Our guide to VAT for Amazon sellers explains what counts.

Once you go over, you have 30 days from the end of that month to register. A company under the threshold can still register voluntarily, which can make sense if most of its customers are VAT registered businesses or it buys a lot of stock with VAT on it.

One group has no threshold at all. If you and your business are based outside the UK, you must register as soon as you sell goods or services in the UK, or expect to in the next 30 days. Many overseas Amazon and TikTok Shop sellers fall into this group. The section on VAT for non-UK businesses in our ecommerce VAT guide covers what they need to do.

Why the threshold resets when you incorporate

A sole trader and a limited company are separate legal persons, even when you own all of the company. Moving your trade into the company counts as a transfer of a going concern (TOGC) for VAT.

HMRC's VAT registration manual sets out what happens next. If the seller is not a "taxable person" at the time of the transfer, the company "will not be deemed to have carried on the business prior to the transfer and the seller's turnover is not required to be considered towards the registration threshold of the buyer". A taxable person is someone who is VAT registered or who should be.

So the company only counts its own sales from the date it starts trading. VAT is only one part of the decision to incorporate, and our guide to choosing a UK business structure covers tax, admin and liability.

A worked example

Claire sells handmade candles on Etsy and her own Shopify store. As a sole trader, her taxable sales for the last 12 months are £72,000 and she is not VAT registered. She sets up Claire's Candles Ltd and moves the business into it on 1 December.

The company starts at nil. It only has to register when its own sales for the previous 12 months go over £90,000, or when it expects to pass £90,000 in a single 30-day period.

Now change one number. If Claire's sole trader sales had reached £95,000, she should already have registered. Incorporating does not fix that. The company must register from the start, and Claire still has a late registration to sort out for the months she traded over the threshold as a sole trader.

When the threshold does not reset

The company inherits your VAT position if, at the date of transfer, you were:

• VAT registered as a sole trader, or
• over the threshold and required to register, even if you had not done so.

If you were registered, you can ask HMRC to transfer your VAT number to the company or register the company afresh. Either way, the company charges VAT from day one.

What to do before you incorporate

Check your taxable sales for the last 12 months, month by month, up to the date you plan to transfer the business. If they are under £90,000 and you are not registered, the company starts from nil. If they are over, the company must register from the start, and the sole trade needs registering for the months it was over too.

Next steps

We handle VAT registration and returns for online sellers, and we help sole traders move into a limited company without tripping over the threshold. See our VAT services or book a discovery call to talk it through.

Sources: GOV.UK, register for VAT; HMRC VAT registration manual, VATREG29300.