HMRC launches digital VAT registration tool for small businesses

HM Revenue and Customs (HMRC) has introduced a digital tool aimed at helping businesses estimate the implications of registering for VAT.

The VAT Registration Estimator was developed in response to feedback from small businesses, who suggested an online tool to assess when their turnover might necessitate VAT registration and its impact on profits.

A business must register for VAT if:

• Their total VAT taxable turnover for the previous 12 months exceeds £90,000. Until 31 March 2024, this threshold was £85,000.

• They expect their turnover to exceed the £90,000 threshold within the next 30 days.

• They are an overseas business supplying goods or services to the UK, regardless of turnover.

A VAT-registered business must charge VAT on eligible sales and can usually reclaim it on eligible purchases. Annually, around 300,000 new VAT registrations are processed.

The estimator helps any business to see what registering for VAT could mean. It also provides links to additional information about the registration process. Businesses below the threshold considering voluntary registration will also find it useful.

Before starting to use the tool, you will need information about your business income, costs, and applicable VAT rates.

• Read the online information about the tool and follow the guidance links for more details.

• Input whether the business is, or will be, based in the UK.

• Enter your approximate business income and costs for the chosen period, up to 12 months. This applies to both existing and new businesses.

• Use the guidance to select the VAT rate(s) for your income and costs as an estimated percentage of zero, reduced, standard-rated, or VAT-exempt goods and services.

• Decide if you prefer to add VAT to or absorb VAT into your current or estimated selling price.

• Review and complete the form to see the results, which you can save and print.

The estimator is free to use, accessible via GOV.UK guidance pages, and should take about 20 minutes to complete on first use. HMRC does not record the details input into the tool.

The VAT Registration Estimator is designed to help you determine if VAT registration is suitable for your business, allowing experimentation with different inputs and outputs. However, it cannot provide bespoke business advice.

Jonathan Athow, HMRC Director General for Customer Strategy and Tax Design, said: “We know that the majority of our customers want to get their tax right. We have listened to what businesses have said and the new tool is designed to help them understand VAT registration, including when they might be required to register.

“The VAT Registration Estimator has been developed in partnership with small businesses and trade representatives who tested the online tool and gave feedback before its launch.

“We hope it will support businesses’ understanding of VAT registration, especially when combined with our guidance and other services.”

Kevin Sefton, member of the Administrative Burdens Advisory Board (ABAB), said: “Businesses need to know before they hit key tax thresholds. Tools and guidance can help them prepare. I’m pleased to see this new VAT registration tool from HMRC that helps a business understand the different types of supplies it makes, and what this means for VAT registration.”