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HMRC launches tool to help self-employed get to grips with VAT – London Business News | Londonlovesbusiness.com
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VAT Registration Estimator also shows businesses how much tax they could reclaim, if VAT registered
The launch of a free-to-use VAT Registration Estimator tool by HMRC has been hailed as a “welcome development” that will help sole traders and directors of limited companies get to grips with VAT registration.
The new tool, developed in response to feedback from small businesses, will help the self-employed “understand VAT registration” and how the threshold could affect their business, said Jonathan Athow, HMRC’s General Director of Customer Strategy & Tax Design.
This includes how much VAT they may be entitled to reclaim, or what they might owe once registered – helping to demystify a complex area of the tax system and solving one of the challenges of the current registration threshold.
Previously increased annually in line with inflation, the VAT threshold was frozen at £85,000 in 2017. While this increased to £90,000 in April this year, it continues to act as a disincentive for business growth, with many small businesses and sole traders uncertain of the financial impact of VAT registration.
The result is that some businesses choose to keep their turnover below the threshold to avoid absorbing the costs and handling the increased complexity of the VAT system.
Speaking on the launch of the VAT Registration Estimator, Seb Maley of tax insurance expert, Qdos, said, “The launch of this tool is a welcome development, and it will help clarify a complicated area of tax law. As a result, sole traders and limited company directors will have a better understanding of the VAT system and how it might affect their business.
“It’s fairly straightforward, too. It takes just a short while to plug in the numbers, and then gives you a clear read on how much VAT you might owe, or be eligible to reclaim, if your business turnover took you over the registration threshold.
“As HMRC rightly acknowledged, most people want to get their tax right – mostly because the cost of getting it wrong can be significant. That’s particularly true, given the tax is authority increasing its compliance activity, especially in its use of tax investigations and VAT disputes.
“In addition to this tool and other HMRC guidance, it’s advisable to look for additional protection, such as tax liability insurance. Such policies will cover you from any tax liability you’ve incurred through non-compliance, in the event that HMRC brings a VAT dispute against you.”