HMRC have recently launched a new tool called the VAT Registration Estimator that enables businesses to see the approximate result on their finances of registering for VAT. If your business is approaching the VAT compulsory registration turnover of £90,000 or considering voluntary registration then this tool might be useful in showing you the potential financial implication – but is it any good? We have taken a look at this new HMRC tool and noted what’s good and not so good about it.

What do I need to use the VAT registration estimator?
The estimator asks you a series of questions regarding the financials of the business so it is best at the very least to have to hand your latest management accounts or (if they are not too out of date) the latest annual accounts prepared. Even with those to hand you are likely to need additional information, for example the estimator asks you how much of your turnover is from supplying services overseas which if you do not categorise your sales between domestic and abroad may mean you need to review your customer list and add up the annual turnover to those overseas.
We would recommend that you have as much of the business financial information as possible to hand as the estimator will only be as accurate as the information entered into it.
How accurate is it?
If you’re able to answer all the questions with exact figures then we would say it is fairly accurate given the limitations on creating an estimator to play to the masses – ultimately an estimate completely bespoke to your business could only be achieved via a thorough review of the finances by an accountant. One thing we liked was that it asks you if when you register for VAT you plan to either:
- Absorb the VAT within the current sales price
- Add the VAT to the current sales price, or
- Absorb some of the VAT into your current price
This is a really nice touch as a lot of businesses stall their growth on fear of hitting the VAT threshold and becoming 20% more expensive to their customers – a major consideration if you are a Business to Consumer (B2C) business. Tax Policy Associates estimate this could be the case for as many as 26,000 businesses. The estimator allows you to play around with this, particularly if you pick option C as you then get to give a percentage of the sales VAT you plan to absorb which gives you the ability to muck around with different percentages and see the result on sales and profit.
How the HMRC VAT registration estimator could be improved?
One frustration we had when using it was that it always wanted answers relating to sales and expenses as a percentage of the total. This means if you have your latest financials in front of you then you will find yourself forever adding up different categories and then working the amount out as a percentage of the total. Given that the estimator gives you financial estimates based on the total sales and total expenses that you enter as a figure, we couldn’t see why it needed to operate this way. It would be much easier to ask you for an amount rather than a percentage, and then if required if could work out the percentages behind the scenes.
What’s it missing?
One thing immediately apparent is that the estimator does not consider different VAT schemes. For example, some businesses may be considering the Flat Rate Scheme whereby you do not reclaim any VAT on your purchases in exchange for paying over a slightly lower percentage than 20% on your sales. Given the questions the estimator already asks it would have only required a few more to add this consideration in.
Businesses registering for VAT have a choice to apply either cash accounting or invoice basis (see our blog on VAT basics here for more details on those), and with a couple of extra questions added in like if you expect to regularly receive VAT refunds, how long your customers take to pay you, and how quickly you pay suppliers, this could have been achieved.
Conclusion
If you are looking for a very basic tool to give you a rough idea of what VAT registration could mean for your business then HMRC’s attempt is not bad. As you would expect there are a lot of disclaimers that it is an estimate only, and with that in mind it could be considered a good starting point.
It’s not designed to replace a conversation with a competent accountant as HMRC have had to juggle between not making it too complicated whilst being of some use to as many businesses as possible. At Veritons we regularly advise on VAT registration, including what scheme is best for your business and guiding you through the whole process of what VAT registration entails. If you would like to speak to us regarding your business hit the contact button below, enter your details and we will be in touch very soon.