You must register for VAT once your garage's taxable sales go over £90,000 in any 12 months in a row. Below that, registering is up to you. For many small garages the choice isn't obvious: VAT makes you 20% dearer for private customers, but it lets you claim back the VAT on parts and equipment. This guide covers the rules, the bits garages get wrong, and how to decide. It's general guidance, not tax advice, so run your own figures past your accountant.
The VAT threshold for garages in 2026
| Rule | Figure |
|---|---|
| You must register when taxable sales go over | £90,000 in any rolling 12 months |
| Or when you expect to go over it in the next 30 days alone | £90,000 |
| You can cancel registration if sales drop below | £88,000 |
| Standard rate on labour, parts and tyres | 20% |
"Rolling 12 months" means any 12 months in a row, not your tax year or your accounting year. Check it at the end of every month. If you go over, you have 30 days from the end of that month to register, and you're registered from the first day of the month after that.
MOT fees don't count towards the threshold
This is the rule small MOT stations most often miss. An MOT test fee from an approved test station, at or below the official maximum (£54.85 for a class 4 car), is outside the scope of VAT. That means it doesn't count towards the £90,000, and you never add VAT to it, even once you're registered.
Anything you add on top of the MOT, like a collection charge, is a separate charge and does count. If you sell used cars, the full selling price counts towards the threshold, even if you use the margin scheme later.
What happens if you register late
If you should have registered and didn't, HMRC can ask for VAT on everything you sold from the date you should have registered, plus a penalty. You didn't charge your customers VAT, so it comes out of your own pocket: 1/6 of every pound you took. On £20,000 of takings that's £3,333. Watch the rolling total, especially in a busy spring.
Registering early: when it makes sense
You can register before you reach £90,000. It's worth thinking about if:
- Most of your work is trade or fleet. VAT-registered businesses claim the VAT back, so a 20% increase costs them nothing. You look more established, too.
- You're about to buy expensive equipment. On a £30,000 + VAT MOT bay, registering first could mean claiming back £6,000.
- You'll pass £90,000 soon anyway. It's easier to start charging VAT on a date you pick than to scramble at short notice.
It's usually worth waiting if:
- Most of your customers are private motorists. They can't claim the VAT back, so you either put prices up 20% or take the VAT out of your own margin.
- You're well under the threshold and not growing fast. Paperwork and quarterly returns take time, and that time costs money.
When you do register, you can usually claim back VAT on parts stock and equipment you still have that you bought up to 4 years before, and on services from up to 6 months before. Keep your receipts.
Prices: what changes on the day you register
From your registration date, you add 20% VAT to labour, parts and tyres. Prices you show private customers should include VAT, so they see the total they'll pay. Trade customers are used to seeing prices "+ VAT".
Until you're registered, you must not charge or show VAT anywhere: not on invoices, estimates or your website. Showing VAT when you're not registered is an offence, even if it says £0.00. Once you are registered, your invoices must show your VAT number and the VAT on each rate.
Your parts pricing changes too. Unregistered, your real cost is the price including VAT. Registered, it's the price before VAT. See parts markup vs margin for how to price both ways.
The Flat Rate Scheme for garages
Under the Flat Rate Scheme, you still charge customers 20%, but you pay HMRC a fixed percentage of your VAT-inclusive takings instead of working out VAT in and out. For "repairing vehicles" the rate is 8.5%, with 1% off in your first year of being registered. You can join if you expect taxable sales of £150,000 or less in the next year. MOT fees are left out here too.
One catch: if you spend very little on goods (under 2% of your VAT-inclusive takings, or under £1,000 a year), you pay a higher 16.5% rate. Most garages buy enough parts to avoid this, but check.
Making Tax Digital
Every VAT-registered business must keep digital records and send returns through software that works with HMRC. That's another reason to get off paper job cards before you register. Garage software that pushes invoices to Xero, Sage or QuickBooks means your accountant gets the figures without you typing them twice. See garage accounting software.
Autex handles both: no VAT anywhere while you're not registered, and correct VAT invoices, with MOT fees kept outside VAT, from the day you are. Book a demo to see it.