HMRC has launched a new digital tool to assist businesses in estimating the implications of VAT registration. The VAT Registration Estimator is a response to feedback from small businesses, which suggested that an online tool would help them understand when their turnover might necessitate VAT registration and how it would impact their profits.
When Must a Business Register for VAT?
A business must register for VAT if:
- Their total VAT taxable turnover for the previous 12 months exceeds £90,000 (known as the ‘VAT threshold’) – previously £85,000 until 31 March 2024.
- They anticipate their turnover will surpass the £90,000 threshold in the next 30 days.
- They are an overseas business supplying goods or services to the UK (or expect to in the next 30 days) regardless of their VAT taxable turnover.
VAT registration requires a business to charge VAT on eligible sales and allows them to reclaim it on eligible purchases. Annually, there are approximately 300,000 new VAT registrations.
How the VAT Registration Estimator Helps Businesses
The VAT Registration Estimator is designed to aid any business in understanding the potential impact of registering for VAT. It also links to further information about the VAT registration process, making it a valuable tool for businesses operating below the threshold and considering voluntary registration.
Jonathan Athow, HMRC Director General for Customer Strategy and Tax Design, emphasises that the new tool aims to support businesses in understanding VAT registration requirements. Developed in partnership with small businesses and trade representatives, the tool was tested and refined based on feedback before its launch.
Kevin Sefton, a member of the Administrative Burdens Advisory Board (ABAB), praised the tool for helping businesses prepare for tax thresholds, while Karen Thomson, another ABAB member, found the tool user-friendly and beneficial for those with no prior VAT knowledge.
How to Use the VAT Registration Estimator
To use the VAT Registration Estimator, you will need information about your business income and costs, as well as the applicable VAT rates. Here’s a step-by-step guide:
- Preparation: Gather information about your business income, costs, and applicable VAT rates.
- Access the Tool: The estimator is available through GOV.UK guidance pages and does not require Government Gateway access.
- Input Business Details: Enter whether the business is, or will be, based in the UK.
- Estimate Income and Costs: Provide approximate business income and costs for up to 12 months. This tool can also be used for new businesses.
- Choose VAT Rates: Use guidance links to select the VAT rate(s) for your business income and costs.
- Decide on VAT Inclusion: Indicate whether you would prefer to add VAT to or absorb VAT into your current or estimated selling price.
- Review and Save: Check your answers, complete the form, and review the results, which can be saved and printed.
The estimator is free to use and typically takes about 20 minutes to complete on first use. Importantly, HMRC will not record the details you input.
Benefits of the VAT Registration Estimator
The VAT Registration Estimator is a guidance tool designed to help businesses decide if VAT registration is right for them. It allows users to experiment with different inputs and outputs, providing a clear understanding of the financial implications of VAT registration.
By utilising this tool, businesses can ensure they comply with HMRC regulations, avoid penalties, and make informed financial decisions. For more detailed and personalised advice, businesses should consult with professional advisors.
Conclusion
The VAT Registration Estimator is a significant step forward in helping small businesses navigate the complexities of VAT registration. By providing clear guidance and allowing for various scenarios to be tested, this tool ensures that businesses can make informed decisions about their VAT obligations.
For professional guidance on VAT registration and compliance, consider partnering with experts like The Infinity Group. Our team is dedicated to helping businesses stay compliant and thrive in a competitive market. Contact us today to learn more about our services.