The VAT Threshold for B&Bs and Small Hotels: How to See It Coming, and What Crossing Really Costs

You have to register for VAT when your taxable turnover goes over £90,000 in any rolling 12-month period — not your tax year, any 12 months ending in any month. For a B&B or small hotel that turnover is the full price guests paid for rooms (before any OTA commission), plus breakfast, dinners, the bar and every extra. Check the number at the end of every month, because you cross it in the month you beat the same month last year by more than your remaining headroom.

Most small accommodation businesses find out about VAT the wrong way: an accountant looks at the year-end figures and says "you went over in July." By then the registration date has already passed, and the VAT is owed on money that has been spent.

This guide is about seeing it coming. What counts, how the rolling test works, a worked example on a five-room B&B, and the arithmetic of the three choices you have when you get close.

This is general information about how the rules work, not tax advice. Your accountant knows your figures; show them this and ask.

The rules in one table

All figures from GOV.UK, checked September 2026.

The forward-look test rarely applies to a B&B — £90,000 in 30 days is a different size of business. It matters if you are buying or opening something much bigger. For everyone else, it's the rolling 12 months.

What counts toward the £90,000

This is where most people underestimate. The threshold is about taxable supplies, and for accommodation that is almost everything you sell.

Two things that don't help:

• Splitting the business. Running the rooms in one name and the breakfasts in a partner's name to keep both under £90,000 is exactly what the anti-splitting rules are for. HMRC has the power to treat artificially separated businesses as one.

• Hoping nobody notices. Since the start of 2024, platforms including holiday-let websites have had to report sellers' earnings to HMRC. Your Airbnb and Booking.com income is already on file.

The OTA trap, in numbers. A B&B that kept £78,000 after commission may already be at the threshold. If 80% of its revenue came through channels taking 15–17%, the booking value is roughly £88,600–£90,300 (ignoring card fees). Work from the booking value, never what's left after commission. (The full arithmetic of what a commissioned booking is worth is in our direct vs OTA post.)

How the rolling 12 months works — a worked example

Here is a five-room B&B's turnover, rooms and extras together, for the 12 months to the end of August 2026:

Headroom: £1,750. About 18 room nights at £95.

Now September 2026 finishes. Each month, one month drops off the back of the window and one joins the front. The month dropping off is September 2025 (£9,400). The month joining is September 2026.

• If September 2026 comes in at £10,900 — £1,500 up on last year — the rolling total is £89,750. Still under. Headroom is now £250.

• If it comes in at £11,300 — £1,900 up — the rolling total is £90,150. Over.

That gives you the rule worth pinning above the desk:

You cross the threshold in the month you beat the same month last year by more than your headroom.

Which means three things:

1. Only a month that grew can push you over. A flat or weaker month can't, however busy it feels. Your danger months are the ones where you put prices up, added a room, or picked up a group.

2. April doesn't reset anything. The tax year is irrelevant. The window moves every month.

3. You can see it coming. If you know your headroom and you can see what's on the books for next month against last year, you'll know before the month ends — not a year later. That's the monthly check in our Monday reports post.

What happens next in the example

The B&B went over at the end of September 2026. So:

• Register by 30 October 2026 (30 days from the end of September).

• VAT applies from 1 November 2026 (the first day of the second month after).

Notice the gap is only a month. Every booking already on the books for November onwards was priced before VAT was in the picture. Ask your accountant how those are treated — the answer depends on when the guest paid — and look at your forward bookings the week you cross, not the week you register.

What crossing costs

This is the part nobody puts numbers on. Once you're registered, VAT comes out of the price the guest already pays. At 20%, that's one-sixth of every VAT-inclusive pound.

Take the same B&B in its first registered year, with prices unchanged and turnover of £92,000 — a little growth on the year before. It kept £88,250 when it wasn't registered.

Growing from £88,250 to £92,000 — more work, more guests — leaves the business £5,000–£11,600 worse off, depending on the scheme.

The corridor

The same arithmetic, measured from the threshold itself: to keep what you'd keep at £90,000 unregistered, you need turnover of

• £108,000 on the standard scheme,

• £100,559 on the Flat Rate Scheme at 10.5%,

• £99,448 in your first Flat Rate year.

Between £90,000 and those figures is a corridor where you work harder for less. The whole strategic question is how long you spend in it.

Standard scheme or Flat Rate?

On the standard scheme you pay 20% on sales but reclaim the VAT on your costs. On the Flat Rate Scheme you pay a fixed 10.5% of VAT-inclusive turnover and generally don't reclaim VAT on costs (single capital purchases of £2,000 or more, including VAT, are the exception).

At £92,000, the standard scheme only wins if you'd reclaim more than £5,673 of VAT on costs — roughly £34,000 of standard-rated spending in the year. Food for breakfasts is mostly zero-rated, so it doesn't help much. For most small B&Bs in a normal year, Flat Rate comes out ahead. A big refurbishment year can flip it.

Two Flat Rate conditions to check:

• Joining limit: you can join if you expect taxable turnover of £150,000 or less (excluding VAT) in the next 12 months.

• The limited cost business test: if what you spend on goods is less than 2% of turnover, or less than £1,000 a year, you pay 16.5% instead of 10.5%. A B&B buying breakfast ingredients usually clears it. A room-only guest house or a holiday let with few consumables may not. Ask your accountant which of your purchases count as goods.

The three choices when you get close

1. Stay under, deliberately

Some owners decide the corridor isn't worth it and cap turnover: close a room in the quietest months, stop serving dinners, hold rates instead of raising them.

It works, and it's legal, as long as it's a real choice and not splitting the business. The cost is everything you turn away. If demand would carry you to £95,000, staying at £89,500 means giving up £5,500 of sales — though, from the table above, a registered £95,000 leaves you with less than an unregistered £89,500 anyway on either scheme. That's why so many small B&Bs sit just under £90,000. It isn't a coincidence.

If you go this way, the monthly check is no longer optional. Your headroom is a number you manage every month, and your pricing for the next month depends on it.

2. Cross, and get through the corridor fast

If demand is there, the aim is to get from £90,000 to £100,000-plus as quickly as you can, on the Flat Rate Scheme with its first-year discount.

A 6–7% price rise sounds impossible until you look at where it comes from. In our seasonal pricing post, most of the gain from a proper rate calendar came from the peak dates — the nights that sell out at any sensible price. Put the increase there first. Guests on OTAs see a VAT-inclusive price and never know you registered.

3. Cross once, and apply for an exception

If you went over because of a genuine one-off — a film crew that booked the house for a fortnight, a wedding that took every room for a week — you can ask HMRC not to register you.

The bar is higher than people think. You have to show your taxable turnover in the next 12 months will stay below £88,000, the deregistration threshold, not £90,000. You ask HMRC for forms VAT1 and VAT5EXC, send them back with your evidence, and HMRC says it will reply within 40 working days. If your normal year is £88,250, like the B&B above, you're unlikely to qualify — the one-off didn't cause the crossing, it just brought it forward.

If you've already gone over and didn't register

Tell your accountant this week. HMRC backdates registration to the date you should have registered, and you owe VAT on everything you sold since — whether or not you charged it. That's one-sixth of what guests paid. On £91,000 of turnover over a year, that's £15,167 owed from money already spent, plus a penalty for registering late.

It gets worse with every month. It's also, with platform reporting, increasingly likely to be found.

The monthly check (ten minutes, first Monday of the month)

1. Pull last month's turnover — rooms at booking value, plus every extra. Not bank payouts.

2. Add it to a 12-column sheet and drop the month from a year ago. The sum of the last 12 columns is your rolling total.

3. Write down your headroom: £90,000 minus the rolling total.

4. Look at next month's line from a year ago. That's the number next month has to beat by more than your headroom to push you over.

5. Check what's on the books for next month against the same point last year. If you're ahead by more than your headroom, you're going over — decide now, not at month end.

6. Every quarter, recheck the Flat Rate figures against your real costs, so you know which scheme you'd pick if you cross.

Holiday lets and long stays

• Holiday lets and self-catering: the same £90,000 test. HMRC's accommodation notice says holiday accommodation is standard-rated regardless of how long the guest stays. Several lets in the same name are one turnover.

• Hotels and serviced apartments with long stays: once registered, a guest staying more than 28 days is treated differently — from the 29th day, VAT is charged only on the part of the price that isn't for the accommodation itself, with at least 20% of the remainder treated as facilities. It's worth knowing if you take contractors or long-stay guests, and a reason to ask your accountant early.

Frequently asked questions

What is the VAT threshold for a B&B in 2026?

£90,000 of taxable turnover in any rolling 12-month period. It's the same figure for hotels, guest houses and holiday lets. You can deregister if turnover falls below £88,000.

Do I count OTA commission when working out my turnover?

Yes. Turnover is the full price the guest paid for the stay, before Booking.com, Expedia or Airbnb takes its commission or fee. On OTA bookings, what reaches your bank can be 15% or more below the booking value, so working from payouts understates turnover.

Does breakfast count toward the VAT threshold?

Yes. Breakfast included in the room price is part of the same sale. Separately charged dinners, bar sales, parking and other extras also count.

Is it the tax year or the last 12 months?

The last 12 months, checked at the end of every month. The tax year doesn't matter. You cross in the month your rolling total goes over £90,000, and you have 30 days from the end of that month to register.

What is the Flat Rate Scheme percentage for a B&B or hotel?

10.5% of VAT-inclusive turnover, with 1% off in your first year of registration. If your spending on goods is under 2% of turnover or under £1,000 a year, the limited cost business rate of 16.5% applies instead.

Can I stay under the VAT threshold on purpose?

Yes, by genuinely limiting what you sell — closing rooms, dropping extras, holding rates. What you can't do is split one business into two to keep each part under £90,000; HMRC can treat them as a single business.

Where Stayvieo fits

The rolling-12-month check is only ten minutes if the numbers are already in one place. In Stayvieo, bookings, folios, card payments and EPOS sales from the bar or restaurant sit in the same system, and Reports & insights — included on every plan — shows occupancy, ADR and RevPAR live for every property. The first-Monday check becomes reading a number rather than rebuilding it from bank statements. See how it works.