Key takeaways
- VAT deregistration is allowed if your turnover drops below £88,000, you cease trading, or your business structure changes.
- The process involves notifying HMRC, submitting a final VAT return, and maintaining records for six years after deregistration.
- Deregistering simplifies administration, but also means you can’t reclaim VAT—so review your pricing, costs, and cash flow strategy carefully.
In short: A UK business can deregister for VAT if its taxable turnover falls below the £88,000 deregistration threshold. It must deregister if it stops trading or making taxable supplies. To deregister, you notify HMRC, submit a final VAT return and keep your VAT records for six years.
Value Added Tax (VAT) is a key part of the UK tax system. Businesses must register for VAT if their turnover goes over the threshold set by HM Revenue and Customs (HMRC). This threshold is currently £90,000. But sometimes a business may want or need to deregister for VAT. This guide explains the reasons for deregistering, the process and what it means for your business.
Why deregister from VAT?
You might deregister from VAT because your turnover has dropped, your business has changed or you have stopped trading. Deregistering can help in some cases, so make the decision with care:
- Falling below the VAT threshold: If your turnover falls below the VAT deregistration threshold (currently £88,000), you can choose to deregister. This can help if your turnover stays low, as it cuts your admin work.
- Business changes: Changes to your business structure may mean you need to deregister, or that it pays to do so. Examples include turning a sole trader business into a company, merging with another business or changing what your business does.
- Ceasing to trade: If your business stops trading or no longer makes taxable sales, you must deregister for VAT. HMRC requires this. Deregister promptly to avoid extra admin and possible penalties for breaking VAT rules.
When can you deregister for VAT?
You can apply for VAT deregistration straight away if you expect your sales to stay under the £88,000 deregistration threshold in the next 12 months. Keep accurate records to support your application.
How do you deregister for VAT in the UK?
Step 1: Check eligibility
First, make sure you meet the criteria for VAT deregistration. Your turnover should be below the deregistration threshold, or you should have another valid reason, such as ceasing to trade. It is also wise to check your financial forecasts. This helps make sure your turnover will not go over the threshold again soon after you deregister.
Step 2: Notify HMRC
You can tell HMRC that you want to deregister online through your Government Gateway account. If you apply by post, you need to fill in the VAT7 form. Give details about your business, your reason for deregistering and the date you want to deregister. Choose this date carefully, as it decides your final VAT obligations.
Step 3: Final VAT return
After you apply to deregister, you need to submit a final VAT return. This return covers VAT on all sales and purchases up to the deregistration date. You may still hold stock or assets on which you claimed back VAT. If so, you might need to pay VAT on them as if you had sold them.
This process is known as self-supply. It balances out any benefit you got from reclaiming VAT on these items, now that you no longer work under the VAT rules.
Step 4: Keep records
Even after you deregister, you must keep your VAT records for at least six years. This includes VAT invoices, receipts and any letters or emails with HMRC. You will need these records if HMRC reviews your past VAT transactions or audits you.
What does deregistering for VAT mean for your business?
Deregistering for VAT means you stop charging VAT and filing VAT returns, but you also lose the right to reclaim VAT. There are good reasons to deregister, so weigh up the benefits and drawbacks before you go ahead.
No VAT charges
Once you deregister, you can no longer charge VAT on your sales. This could make your products or services cheaper for customers who are not VAT-registered. But you also cannot reclaim VAT on your business purchases, which may raise your costs. This change can have a big effect on your pricing and how you compete.
Simpler administration
Deregistering for VAT cuts your admin work, as you no longer need to submit VAT returns or keep detailed VAT records. This frees up time and resources for other parts of your business. For small businesses and sole traders, it can save a lot of time and money spent on accounting.
Impact on cash flow
Think about how deregistering will affect your cash flow, especially if you often reclaim more VAT than you pay. Losing the right to reclaim VAT could hurt your overall profits. Review your financial plans and budgets to account for these changes and keep your cash flow stable.
Changes in pricing
Review your pricing after you deregister for VAT. Your customers may be mostly VAT-registered businesses. If they can no longer reclaim VAT on what they buy from you, they may not want to pay the same prices. You might need to change your prices or offer other incentives to keep your customers.
Market perception
Deregistering from VAT might also change how people see your business. Some customers see VAT registration as a sign of a more established business. Deregistering could affect this view, so explain the reasons for your decision and its benefits clearly to your clients.
Is deregistering for VAT right for you?
Deregistering for VAT can be a simple process if you understand the rules and what they mean for you. You may be driven by lower turnover, changes to your business or a wish for less admin. Either way, weigh up the financial and practical effects on your business first. Always talk to a tax adviser or accountant so your decision fits your business goals.
Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.
How Taxually handles this
Taxually’s CrossTax handles VAT registration, VAT, OSS and IOSS returns and fiscal representation in the countries you sell into, and checks your sales data against 250+ validation rules before each filing. OneTax then pays every tax authority with one bulk payment in your chosen currency.
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Frequently asked questions
What happens if I fail to cancel VAT registration on time?
Failing to cancel your VAT registration within the 30-day window can lead to penalties from HMRC, underscoring the significance of acting promptly.
Can I keep my existing VAT number if I transfer my VAT registration?
Yes, you can keep your existing VAT number when transferring your VAT registration to another legal entity.
What are the consequences of re-registering for VAT after cancellation?
If you voluntarily re-register for VAT, you'll receive a new registration number. If HMRC automatically re-registers your business, you must retroactively account for any VAT that should have been paid. Be prepared for potential retroactive VAT liabilities.
How long must I keep VAT records after deregistering?
After deregistering, you must keep your VAT records for six years.
Is it better to reduce prices or increase my margin after VAT deregistration?
It depends on your business goals. Assess your competitive landscape and financial health to make an informed decision about whether to reduce prices or increase your margin after VAT deregistration.
