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HMRC VAT Registration Estimator
HMRC

HMRC goes live with VAT Registration Estimator tool

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HMRC has launched a digital tool designed for small businesses to check the potential implications of VAT registration and experiment with different inputs and outputs.

10th Jul 2024
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Launched today, HMRC’s VAT Registration Estimator is a guidance tool designed for small businesses to assess what registering for VAT could mean.

New or established businesses can visit the HMRC webpage, enter their details and find out whether their turnover could require them to register for VAT (and the effect this could have on their profits).

The tool also links to further details about the VAT registration process and provides information for businesses operating below the threshold and considering voluntary registration. However, in a release about the estimator, HMRC emphasised it could not provide bespoke business advice.

Accessible via a gov.uk guidance page rather than the Government Gateway, the estimator will not record the details inputted by businesses or their advisers.

How to use the estimator

HMRC guidance on how to use the VAT Registration Estimator states it should take around 20 minutes to complete on first use. Before using it, businesses should have information about their income and costs (and the VAT rates that apply to them) to hand.

The tool then guides the user through a number of fields, including whether the business is (or will be) based in the UK, and what the approximate business income and business costs are for the time period they wish to estimate (up to 12 months).

Businesses can choose appropriate VAT rate(s) for their business income and costs as an estimated percentage of zero, reduced or standard rated, or VAT-exempt, goods and services. They can then input if they would prefer to add VAT to, or absorb VAT into, their current or estimated selling price.

The tool provides links to VAT guidance where appropriate and offers help completing the boxes.  

Users can then check their answers and complete the form to review the results, which can be saved and printed. VAT Registration Estimator guidance tool sessions end after 15 minutes of inactivity.

For more information online about the VAT Registration Estimator tool visit its homepage. HMRC will host a live webinar explaining how to use the tool on 24 July 2024, which will also be available to view on demand. Details of the webinar will be available on the help and support for VAT guidance pages.

VAT threshold ‘unofficial turnover limit’ for small businesses

The VAT registration threshold has long been a controversial topic among small businesses and their advisers. 

At £90,000, the UK’s VAT registration threshold is higher than any EU member state and the highest in the Organisation for Economic Cooperation and Development (OECD). From 2017 to 2024 the threshold was frozen by the government at £85,000, with inflation gradually increasing pulling more small businesses into the regime via fiscal drag.

Both the threshold itself and its static state have led some small business commentators to call it an unofficial turnover limit, which places a ceiling on small business growth and imposes unnecessary administrative burdens on small firms. 

Data from Tax Policy Associates suggests that around 26,000 businesses are stalling their growth for fear of hitting the VAT threshold, with firms choosing not to take on work for fear of increased costs and admin workload. Despite this, HMRC figures show there are around 300,000 new VAT registrations each year.

Replies (23)

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By Open all hours
10th Jul 2024 18:21

26000 business stalling growth to avoid registration feels like a huge underestimate?

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Replying to Open all hours:
7om
By Tom 7000
11th Jul 2024 12:29

I have a few that do this

Thanks (3)
Replying to Tom 7000:
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By Open all hours
11th Jul 2024 14:02

Same and I bet for every one genuinely restricting their activities there are three working for cash a day or two a week.

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By FactChecker
10th Jul 2024 18:35

The story as always isn't what HMRC want you to focus on, Tom, the 'estimator' is basic + comes with no assurance of reliability + avoids the majority of issues that trip people up (based on Any Answers).

But in terms of the HMRC line:
"HMRC figures show there are around 300,000 new VAT registrations each year"
* so how does this translate into the number who are new companies VS the number hitting the threshold for first time?
* what %age of new registrations are for incorporated VS partnerships VS self-employed?
* how has that volume changed over last 10 years?
* and how many new registrations are still trading (not dormant or closed) 2 years later?

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Replying to FactChecker:
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By FactChecker
10th Jul 2024 18:41

I'll let others (those with more skin in this particular game) test/review the tool ... but "the approximate business income and business costs are for the time period they wish to estimate" is a bit worrying if it doesn't explain the difference between which of those may be exempt or zero-rated (and the difference).
And there's no mention (above) about differences between products and services ... or the potential importance of where the supply takes place ... or the impact of overseas clients/e-platforms/reverse charges ... and so much more.
Or indeed the various schemes available to the VAT registered ... and, and ...

Thanks (5)
VAT
By Jason Croke
10th Jul 2024 19:20

I've had a play with this new HMRC initiative.

Tried different things, a UK business and a Non-UK business but either route it does not say you must register for VAT (even though a Non-UK entity has a Nil VAT registration threshold).

For a Non-UK trader the conclusion was "You must register for VAT if you’re selling goods or services in the UK in most circumstances" whereas for a UK business the conclusion was "You must register for VAT if your taxable turnover increases to £90,000 or over."

So there is some element of steering the reader but not fullly committing as to whether you should register or not.

What was useful was where it asks how VAT registration might affect your pricing when considering things like input tax recovery against absorbing some of the VAT increase, etc.

Plenty of private schools will likely find that rough analysis of price impact quite useful.

The online process does try to be helpful and asks if sales or purchases are reduced rated or outside the scope, but there is a presumption the user knows all the subtle differences between the VAT rates, how many people will assume zero rate is the same as outside the scope, for example.

Overall, it's an okay little thing but don't see what purpose it serves beyond the part that looks at your future pricing model.

Will it encourage business owners to avoid using accountants, probably for some yes, but then these types wouldn't pay for advice anyway and good luck to them because HMRCs website does not guarantee the answers given are to be relied upon not can it be used as mitigation in the future.

Another attempt to push taxpayers away from agents, HMRC usual view that taxpayers can self serve all their tax needs online....but I'm not sure if HMRC have too much faith in taxpayers or not enough faith in agents.

Can't see this reducing the need to use the helplines, so again, not sure what this app is trying to achieve, still, if HMRC can waste time and resources on this, then it suggests in terms of priorties, they've got all their other IT and MTD computer issues sorted.

Thanks (10)
Replying to Jason Croke:
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By rmillaree
11th Jul 2024 08:52

asking quetsions and projecting turnover without asking about reverse charge overseas supplier expenses that form part of the turnover for registration purposes and therefore those calcs is imho close to negligence.

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By rmillaree
11th Jul 2024 08:49

the calculator does not even ask what a buisness is spending on overseas suppliers of services - eg google/facebook/indeed/microsoft/adobe/dropobox

how can they do a calculator like this that projects turnover for vat registration purposes and be that stupid that they miss an important element of the turnover calcs - its probably the main item that businesses might not remember to include unless you slap them in the face. Get the detail right hmrc if you are going to the trouble of providing tool like this.

Thanks (5)
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By milleniumaire
11th Jul 2024 09:38

I've just developed my own AI version of the VAT Estimator Tool and after entering information, the results were that VAT registration hinders a small business and increases the prices customers pay.

Well, who would have thought that would be the case!

Thanks (5)
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By KenKLM
11th Jul 2024 09:51

I have a client who closed a few weeks ago for a few days to avoid going through the turnover limit before it’s year end . Registration would destroy the business . If you employ even only 1 person in a margin profit business you are likely to go close to £90k sales a year . Limit needs lifting to £150K+ if we are to encourage more small businesses and help those already trading to expand . You take a fee based / membership based business just going over £90k and forced to register they can lose circa . £12.5-£15k per year to HMRC maybe making the business no longer viable. This is why there are thousands desperate to stay out of VAT. We have the FRS limit at £150k .. why not just do a global 5% flat rate for all business until they start to exceed that? Something imaginative needs to be done as we need to drive the economy via small business

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By RICHARDBIBBY
11th Jul 2024 10:24

Another great investment by HMRC. Emperor Nero aka Jim Harra continues on his on his fiddle.
Wonder how much this cost and how many Civil Sevants were involved?

Thanks (8)
Replying to RICHARDBIBBY:
Rob Swan
By Rob Swan
11th Jul 2024 11:57

RICHARDBIBBY, You took the words right out of my mouth.

I expect the consultants who (undoubtedly) produced this overly simple and (highly) misleading waste of computing resource - as the comments above illustrate - are doing very nicely thank you

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By Verified
11th Jul 2024 14:18

I'm ditching clients so I can move towards keeping my profits within the basic rate band.

I've earned most of the money I need in this life, so it's time to do less and pay less tax.

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Replying to Verified:
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By rmillaree
11th Jul 2024 14:29

why not just add to penssion to extent you are into h rate - shouldnt have been an issue in the first place if you dont need the income now. ie reduce work when you want to rather than crossing h rate band if there alternative measures to mitigae tax

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Replying to rmillaree:
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By Verified
19th Jul 2024 12:29

Maybe the tax isn't the only reason for reducing my workload. Maybe I'd like more free time now while I am relatively young vs spending even more of it working than I already have.

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By ralan
11th Jul 2024 14:22

To be honest I find that HMRC are trying to push us to do everything online then when you try to you cannot.
Recent Help and Guidance says changes have to be done through ASA but when I log in there I get "This service is unavailable" and when I try to call there is no one there and the Chat bot cannot understand what you want.
All in all HMRC is in melt down and then they will blame us when we cannot use their rubbish system

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By Paul Crowley
11th Jul 2024 15:45

Gosh, HMRC must have lots of time to waste, but not the capability to understand how to create something useful.
The entire Gov website is full of stuff that is so basic as to be misleading.
I wish they would just try to do their jobs and stop treating those who try to use their website as idiots.

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Replying to Paul Crowley:
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By spilly
11th Jul 2024 23:17

Erm, maybe that’s just the level of sense of those in HMRC that commission stuff like this?
Either that or it’s done deliberately to make people think they can do it themselves, then when they get it wrong, HMRC can add outrageous penalties on.

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Morph
By kevinringer
12th Jul 2024 09:45

Why is HMRC spending money on this when HMRC's existing IT is in tatters? Anyone who decides to register for VAT may have a long wait. I registered a client in March via the online VRS. Still waiting for the registration to go through. I progress chased HMRC this week. Turns out one bit of digital information I input into the VRS got lost within HMRC's most digitally advanced system in the world. This week I was able to speak to a HMRC human about it and he gave me a 'secret' email address so I could re-submit what I'd previously submitted digitally and HMRC had digitally lost. The HMRC person I spoke to had direct access to the 'secret' email inbox and was able to check my email whilst I was still on the phone. We didn't experience so many registration delays pre-Covid, when HMRC staff were required to work in the office and not their homes.

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Replying to kevinringer:
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By rmillaree
12th Jul 2024 11:31

i suppose in some respects life goes on - yes they should prioritse basic stuff like processing applications for vat and processing vat refunds which they are current delaying past 30 days "beacuise they can"

the reality is its probably two different teams and two different departments so its perhaps not fair to expect allm activities to stop. it is a bit of a disgrace though that unacceptable bad habbits that were "tolerated" through covid have turned into the norm - back in the day the vat office used to be apologising over the phone (they used to answer the phone) if they hadnt issues a vat number in 14 days - back then they took pride in doing the basics right - now they have lost the plot.
How hard is it to set soem basic standards that take priority - we all know when stuff isnt sorted quickly it tends to waste everyones time if they have to fend of numeroud requests to do what they shoudl have done weeks agp - plus if they wait 6 weeks before asking basic questions it makes them loom stupid. head of vat and each department shoudl hang their heads in shame they cant get in back how it was.

Thanks (2)
Replying to kevinringer:
Rob Swan
By Rob Swan
12th Jul 2024 11:41

You have two cars:
A. A crappy old banger which burns more oil than fuel, shakes you to pieces and breaks down every two miles and
B. A brand new, shiny, exciting, sporty roadster with a full support team, all eager to ensure your new 'toy' runs perfectly. It's not very practical but it is a boat-load of fun!

Which one are you going to use?
Which one are you going to ignore?

Simples!

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By Ralphgab
15th Jul 2024 10:24

Knowing how accurate and helpful the IR35 CEST tool is gives me great faith in this new tool!

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By norstar
16th Jul 2024 11:03

Does it estimate the impact of HMRC delaying registration of a client for VAT by ten months? Or ignoring valid deregistration applications? Or the cost to someone buying a property that is opted to tax because HMRC wouldn't process a registration in time for the purchase, meaning they had to mortgage 20% more than necessary to pay the VAT? No? not interested then.

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