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Small business owners can work out whether to register for VAT much more easily thanks to a new VAT registration estimator from HMRC.

SME owners often ask whether it’s worth registering for VAT. In the past, business owners have had to work out themselves the implications of registering for VAT. It can be a complicated and confusing process. And if they register and realise it was the wrong decision, they have to go through a process to deregister.

With latest figures showing that 26,000 businesses in the UK have slowed growth so they don’t reach the VAT threshold, it’s clear VAT is seen as a big issue. But it’s not always the case and doesn’t have to be.

HMRC has now launched the new digital tool so that business owners can experiment with their figures before making their decision.

Of course, it’s always worth speaking to your accountant before making the decision. Especially as HMRC says the estimator cannot provide bespoke business advice. But the tool will at least help get an understanding and an overview of what registering for VAT will mean to your business.

Here, we’ll take a look at the new VAT registration estimator and how it works.

When should a business register for VAT?

First of all, don’t forget that this tool is useful for businesses that can register for VAT but do not legally have to. There are instances where your business must register for VAT. Failing to do so can lead to penalties. Those instances are:

  • Your business turnover is more than £90,000 in a rolling 12-month period.
  • You expect your business turnover to exceed the £90,000 threshold in the next 30 days.
  • Your business is not based in the UK and you’re supplying goods and services to the UK no matter what your turnover.

For some businesses, registering for VAT makes sense, especially if you buy lots of goods or services that have added VAT. But there are also arguments not to register. For example, it creates extra paperwork and by adding VAT, it could make your business less competitive.

Speaking to an accountant, such as our team at Concept Accountancy, is advisable. But you might still want to look at the possible outcome of registering in your own time. This is where the VAT registration estimator can help.

How does the VAT registration estimator work?

To start, you will need some basic information:

  • Information about income and costs
  • The VAT rates that apply to your business. Most meet the 20% rate but some goods and services qualify for the reduced rate of 5% or 0% rate. You’ll find out what that is here.

The estimator tool then guides you through a number of fields: this includes whether your business is UK-based and the approximate business income and costs for a certain time period.

You’ll be asked to choose which VAT rate you qualify for. One useful thing is that the tool offers help when completing the boxes. 

Once you have completed all the boxes and checked the answers, the tool will outline the scenario. You can save the results and also print them. Be aware that after 15 minutes of inactivity, the tool times out. So make sure you use it when you’re not likely to be distracted.

To use the HMRC VAT registration estimator tool, click here

What should I do next?

Once you’ve used the tool, you might still have some questions. That’s when speaking to an experienced accountant is useful because the tool can’t answer all your questions. To speak to our team of accountants, contact us today by filling in the form or telephone 0191 603 1760.