HMRC has launched a VAT Registration Estimator tool for small businesses to check if they need to register for VAT. Whether you are a new startup or long-established, you can go to the HMRC webpage, input your details and see if your turnover requires VAT registration and what the impact will be on your profits.
Available on the gov.uk guidance page, not the Government Gateway, the tool doesn't store any of the information you or your adviser input, so it is private and confidential. The tool also gives guidance on the VAT registration process and information for businesses that may want to register below the threshold. HMRC has said, however, that the estimator cannot give business-specific advice.
Using the VAT Registration Estimator
HMRC guidance says it takes about 20 minutes to complete on the first attempt. To use the tool effectively, you will need to have your income, costs, and VAT rates to hand.
The estimator will guide you through several fields, including whether your business is based in the UK and the approximate income and costs for the period you want to estimate, which can be up to 12 months. You can select the VAT rates for your business income and costs and the percentage of zero, reduced, standard-rated, or VAT-exempt goods and services. You can also choose to add or absorb VAT to your current or projected selling price.
The tool has links to VAT guidance where needed and helps you complete the fields. Once you have entered all the information you can review and check your answers and save and print the form for future reference.
HMRC is also hosting a live webinar on 24 July 2024 to show users how to use the tool, which will also be available on demand later. Details of this webinar can be found on the help and support for VAT guidance pages.
The VAT threshold
The VAT threshold has been a topic of debate for small businesses and their advisers for some time. Currently at £90,000, the UK's VAT threshold is the highest in the EU and OECD. From 2017 to 2024 the threshold was frozen at £85,000, meaning inflation has pulled more small businesses into VAT through fiscal drag.
The static threshold has led some small business commentators to call it an unofficial turnover limit, saying that it caps small business growth and creates unnecessary admin burdens. According to Tax Policy Associates, around 26,000 businesses are deliberately not growing to avoid the VAT threshold and are not taking on more work because of the fear of increased costs and admin. Despite these concerns, HMRC data shows there are around 300,000 new VAT registrations each year.
The VAT Registration Estimator helps businesses simplify these complexities by giving users a clear view of the VAT implications. It's a useful tool for small business owners to make informed decisions about their VAT obligations and weigh the pros and cons of registering for VAT based on their circumstances.
Overall, the VAT threshold may still be a topic of debate, but the VAT Registration Estimator is a step in the right direction, giving small businesses the tools to better understand and manage their VAT.
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