Here’s a question that lands in our inbox almost daily: “I’m a sole trader approaching £90,000 turnover. If I set up a limited company, can I reset my VAT threshold and delay registration?”
The answer might surprise you. Yes, you can – but only if you play by HMRC’s rules. And those rules are more specific than most accountants realise.
Knowing this VAT rule will save you thousands
The VAT threshold has been frozen at £90,000 since 2024, while inflation keeps pushing businesses toward it faster. What used to take years to reach now happens in months for successful ecommerce sellers.
We’ve seen this play out countless times. A seller starts on eBay or Amazon, hits their stride, and suddenly they’re staring down VAT registration with all its complexity and admin burden. The natural question becomes: “How can I buy myself more time?”
The Reset Rule That Most Don't Know About
When you incorporate as a limited company, you’re creating a separate legal entity. This triggers something called a “Transfer of a Going Concern” (TOGC).
Here’s the key insight most accountants miss: HMRC’s own guidance states you must be a “taxable person” to transfer your VAT threshold. If you’re not VAT registered and haven’t breached £90,000, you’re not a taxable person.
Result? Your threshold resets to zero.
Real example: Sarah runs a dropshipping business. She’s sold £82,000 as a sole trader over 12 months. She incorporates before hitting £90,000. Her new limited company can now sell another £90,000 before needing VAT registration
The VAT Deadline
Timing is everything here. Cross the £90,000 threshold as a sole trader, and you’ve become a “taxable person” – even if you haven’t registered yet (which, by the way, you should have).
Once you’re a taxable person, incorporating won’t help. Your limited company must register for VAT from day one.
Another example: Mark sells on Amazon and hits £92,000 in sales but delays incorporating, hoping to avoid VAT. Too late. He’s already required to register, and his new company will need immediate VAT registration.
The One time VAT Trick
Here’s where HMRC gets tough. This reset trick works once. Try it again, and you’ll face anti-avoidance penalties that make VAT registration look like a paperwork picnic.
They’re watching for patterns of incorporation designed purely to avoid VAT. Get caught, and the penalties are severe.
How has VAT changed since 2024
Recent HMRC guidance has tightened the interpretation of TOGC rules. They’re scrutinising these transfers more closely, particularly for ecommerce businesses where the pattern is common.
The threshold freeze has also created a bottleneck. More businesses are hitting £90,000 faster, making this strategy more valuable – and more scrutinised.
Should You Actually Do This?
Delaying VAT registration isn’t always the win it seems.
VAT registration brings benefits:
- You can reclaim VAT on business expenses
- Professional credibility with suppliers
- Access to better supplier terms
- Simplified international selling
The admin burden is real, but it’s manageable with the right systems. And if you’re growing fast enough to worry about VAT thresholds, you’re probably ready for the step up in financial management.
Getting the Timing Right
If you decide this route makes sense, timing is critical:
- Track your sales religiously – know exactly where you stand against the threshold
- Plan your incorporation at least 8 weeks before hitting £90,000
- Ensure clean TOGC documentation – HMRC will scrutinise the transfer
- Consider your growth trajectory – will you hit £90,000 again quickly?
This strategy works, but it’s not a long-term solution to VAT obligations. It’s a tactical delay that buys you time to prepare.
Most successful ecommerce businesses eventually embrace VAT registration as part of scaling up. The question isn’t whether you’ll register, but when – and whether you’ll be ready.
What We’d Recommend
Don’t use incorporation purely to dodge VAT. Use it as part of a broader business strategy where VAT threshold reset is a bonus, not the main objective.
Focus instead on building systems that make VAT compliance straightforward. The right accounting software, proper record-keeping, and understanding your obligations matter more than delaying the inevitable.
