A SaaS company approaching £90,000 in annual recurring revenue faces a question that a generic VAT guide does not answer: does this number include overseas subscription revenue, or not? The answer turns on place-of-supply rules and whether each sale is to a business or a consumer. This page explains those mechanics for UK SaaS founders. The generic question of when any UK business must register for VAT is well covered elsewhere. This page is the SaaS-specific overlay.
The £90,000 threshold: stated once, then the real question begins
VAT registration is mandatory once rolling 12-month UK taxable turnover reaches £90,000, or when there is a reasonable expectation that turnover will exceed that figure within the next 30 days. Those are the trigger rules.
For most businesses, taxable turnover roughly equals total sales. For a SaaS company with a mixed international customer base, it does not. The word "taxable" is doing significant work in that sentence, because place-of-supply rules determine whether a given subscription is within the scope of UK VAT at all. Revenue that falls outside UK VAT scope does not count toward the £90,000 figure. So a company with £300,000 ARR may have well under £90,000 of UK taxable turnover, depending on where its customers are and how each supply is classified.
This page does not re-explain the generic threshold, the when-to-register mechanics, or VAT scheme choices. Those are generalist topics. The SaaS-specific question is: which of my revenues count?
Place of supply: why where the customer is matters more than where you are
For digitally supplied services, including SaaS subscriptions, the foundational VAT principle is that the place of supply generally follows the customer, not the supplier. A UK company selling a subscription to a customer who belongs overseas does not automatically make a UK supply.
"Belongs" has a technical meaning under VAT law. For a business customer, it is typically where the business is established. For a consumer, it is where they are resident or usually live. The country where the supply is treated as made determines which country's VAT rules govern the transaction, whether any VAT is charged at all, and whether the revenue counts toward the UK registration threshold.
The practical consequence for a UK SaaS company is that the geographic mix of its customer base is a tax variable, not just a commercial one. A subscription to a UK business customer and a subscription of the same value to a US business customer may have completely different VAT treatments and different effects on your UK threshold position.
The specific conditions that determine where a digital supply is treated as made are set out in HMRC VAT Notice 741A. The mechanics are fact-sensitive, so check every supply type your business makes against that notice before drawing conclusions about your threshold position.
B2B and B2C digital sales: how the treatment differs
The single most important distinction for a SaaS company is whether each customer is a business or a consumer. The VAT treatment, and the effect on your UK threshold, differs significantly between the two.
B2B supplies to overseas business customers
Where a UK SaaS company supplies digitally delivered services to a business customer outside the UK, the reverse charge typically applies. Under the reverse charge mechanism, the customer accounts for VAT in their own jurisdiction rather than the UK supplier charging UK VAT. The practical effect is that the UK supplier charges no UK VAT on that supply, and the supply may fall entirely outside the scope of UK VAT.
If a supply is treated as outside the scope of UK VAT, it does not count toward the £90,000 UK registration threshold. A company with a predominantly overseas B2B customer base can therefore reach a materially higher ARR before its UK taxable turnover hits the registration trigger.
The conditions that determine whether a customer qualifies as a business for these purposes, and what evidence you need to support that classification, are set out in Notice 741A.
B2C supplies to overseas consumers
Supplies of digital services to consumers (rather than businesses) outside the UK follow different rules. The treatment depends on whether the consumer is in the UK, in the EU, or elsewhere, and the applicable rules changed following the UK's departure from the EU. The mechanics differ from the B2B reverse charge and the effect on your UK threshold position is not the same.
Overseas B2C digital-service supplies may still fall outside UK VAT scope in some circumstances, but the conditions differ from the B2B route and there may be separate registration obligations in the customer's country. For the whole B2B-versus-B2C split above, Notice 741A is the source that governs how each supply is treated. Post-Brexit EU VAT and any OSS or IOSS obligations sit outside this page and need checking against the relevant EU guidance for the destinations you sell into.
SaaS supply types: a qualitative treatment table
The table below maps the four main supply-type combinations a UK SaaS company typically faces and summarises the VAT treatment and threshold effect for each. The only hard figure is the £90,000 threshold; every treatment cell is a general indication that depends on the facts of the specific supply, which is where Notice 741A does the deciding.
| Supply type | Who accounts for VAT / how treated (qualitative) | Counts toward UK £90k threshold? | Reference |
|---|---|---|---|
| UK B2B (business customer in the UK) | UK supplier charges UK VAT at the standard rate in the usual way | Yes, this is a UK taxable supply | Notice 741A |
| UK B2C (consumer in the UK) | UK supplier charges UK VAT at the standard rate in the usual way | Yes, this is a UK taxable supply | Notice 741A |
| Overseas B2B (business customer outside the UK) | Reverse charge typically applies; customer accounts for VAT in their own jurisdiction; UK supplier generally charges no UK VAT | Likely no, if treated as outside UK VAT scope | Notice 741A |
| Overseas B2C (consumer outside the UK) | Treatment depends on destination and supply type; B2C digital-service rules differ from B2B reverse charge; may fall outside UK VAT scope in some cases but conditions differ | Possibly no, but fact-specific | Notice 741A |
Sources: the £90,000 threshold is set out at gov.uk: register for VAT; the place-of-supply treatment of each cell comes from Notice 741A.
What this means for a scaling SaaS company
The practical implication is that a SaaS company's registration timeline depends heavily on its revenue mix, not just its total ARR.
Consider two illustrative scenarios, neither of which uses real figures beyond the £90,000 threshold:
- Predominantly overseas B2B revenue: A company with most of its subscriptions coming from business customers outside the UK may find that only a fraction of its ARR counts as UK taxable turnover. It could reach several multiples of £90,000 in total ARR before the threshold is triggered, provided its B2B customer classifications are accurate and well-evidenced.
- Mixed or UK-heavy revenue: A company with significant UK customers, or with overseas revenue that is B2C or that does not qualify for outside-scope treatment, may hit the threshold at a level much closer to total ARR. The registration point comes sooner.
Neither scenario removes the compliance obligation once the threshold is crossed. And both scenarios require the same underlying work: a clear, evidence-based classification of every customer and supply type against the place-of-supply rules in Notice 741A.
Getting this wrong in either direction has consequences. Registering too early creates an administrative and cash-flow burden and may make pricing harder in B2B markets where customers are not VAT-registered. Registering too late means unpaid VAT, interest, and potential penalties on supplies that should have had UK VAT charged from the registration point.
Getting the invoicing right: evidence and classification
Place-of-supply treatment does not apply automatically based on where a customer says they are. HMRC expects suppliers of digital services to hold evidence of customer status and location. The standard of evidence required, and the type of evidence that is acceptable, is set out in Notice 741A.
For B2B supplies, the classification question is whether the customer is in fact a business. A VAT number from the customer's own jurisdiction is the most common form of evidence, but Notice 741A specifies what is required and what happens when evidence is incomplete or contradictory.
The practical consequence is that the classification work sits close to the invoicing and customer-onboarding process. A SaaS company that collects VAT numbers at sign-up and validates them against the relevant registers is in a materially better position than one that makes assumptions based on the billing address. The invoice itself must also reflect the correct treatment: a reverse-charge supply to a business customer carries different invoice requirements from a standard-rated UK supply.
This is the operational side of the place-of-supply question, and it is the part most generic guides do not reach. Before you go live or change your invoicing process, confirm the evidence and invoice requirements for each supply type against Notice 741A.
What to do next
If your ARR is approaching a level where the £90,000 threshold could be relevant, the first step is a structured review of your revenue by supply type. That means classifying every product line and customer segment against the place-of-supply rules in Notice 741A, establishing what evidence you hold for each classification, and calculating your UK taxable turnover separately from your total ARR.
That review is also the point at which timing decisions are made. Once the threshold is crossed, registration is not optional and cannot be backdated at your convenience. Building the classification framework before the threshold approaches is straightforwardly less costly than trying to reconstruct it after the fact.
Our core compliance service covers VAT registration and ongoing compliance for SaaS and product companies, including place-of-supply review and invoicing setup. If you are scaling a SaaS business and want to understand your VAT position before it becomes urgent, that is the right place to start. You can also read more about the financial foundations of a scaling SaaS company on the SaaS companies hub.