Deregistering from VAT is usually straightforward, but understanding the process correctly can save your business from costly mistakes. Whether you’re considering the VAT deregistration process due to falling turnover or changing your business structure, this guide covers everything you need to know about how to remove VAT registration.
Many businesses reach a point where VAT registration is no longer necessary or beneficial. Perhaps your turnover has decreased, you’re changing your business structure, or ceasing to trade. Whatever your circumstances, it’s crucial to understand both the compulsory and voluntary deregistration rules, particularly the requirements around accounting for assets on hand.
Key Takeaways
- The current VAT deregistration threshold is £88,000 (as of 1 April 2024)
- You must account for VAT on assets on hand if the total VAT due exceeds £1,000
- Deregistration cannot be backdated, you must continue charging VAT until HMRC confirms cancellation
- HMRC typically processes applications within 40 working days
- You must keep all VAT records for 6 years after deregistration
When You Must Deregister from VAT?
Understanding when deregistration is mandatory versus optional is crucial for compliance. Let’s explore the situations where HMRC requires you to cancel your VAT registration, and the consequences of failing to notify them promptly.
Your business must deregister if:
- You stop making taxable supplies with no intention to resume
- The legal entity changes (e.g., sole trader to limited company) though the new entity can retain the VAT number
- Your business is sold, though the VAT number can be retained with buyer agreement
- You registered with intent to make taxable supplies, but this intention no longer exists
- You’re joining or disbanding a VAT group registration
According to HMRC’s VAT Notice 700/11, you must inform HMRC within 30 days of any changes affecting your registration to avoid penalties.
When Can You Choose to Deregister?
Voluntary deregistration offers flexibility for businesses whose turnover has fallen below the threshold. However, you’ll need to meet specific criteria and provide evidence to convince HMRC that your reduced turnover is sustainable.
The VAT deregistration threshold is £88,000 (effective from 1 April 2024). You may voluntarily apply for deregistering from VAT if you can satisfy HMRC that your taxable turnover in the next 12 months won’t exceed this amount.
To successfully deregister voluntarily, you’ll need to:
- Calculate turnover on a VAT-exclusive basis
- Demonstrate you’ll stop charging VAT or (for retailers) reduce prices by the VAT element
- Provide evidence such as reduced opening times, lost contracts, or changed business practices
Important: Supplies of capital assets can be ignored when calculating the threshold, but positive-rated supplies of land and buildings must be included.
Understanding Assets on Hand at Deregistration
The most commonly misunderstood aspect of the VAT deregistration process is treating business assets you own when deregistering. This section explains the £1,000 threshold rule and clarifies exactly which assets you must include in your final calculations.
The £1,000 Rule
According to official HMRC guidance, you must account for VAT on tangible assets on hand (excluding intangible assets like goodwill) and positive-rated interests in land where total VAT due exceeds £1,000.
In practical terms:
- If all assets are standard-rated at 20% VAT, the VAT-inclusive value must exceed £6,000 before VAT becomes due
- If total VAT on assets is £1,000 or less, no VAT payment is required
- If value exceeds £6,000 gross, you must account for VAT on all qualifying assets
What to Include and Exclude?
Include:
- Tangible goods on which you claimed VAT: stock, plant, furniture, commercial vehicles, computers
- Interests in land that would be taxable if sold (e.g., where you’ve opted to tax)
- Assets acquired in a Transfer of a Going Concern, even though no VAT was charged initially
Exclude:
- Cars (except private taxis, self-drive hire cars, and driving school cars)
- Goods for business entertainment
- Goods wholly used for exempt activities
- Goods purchased from unregistered businesses
How to Remove VAT Registration?
The VAT deregistration process is straightforward once you understand the steps involved. Here’s how to submit your application, what to include in your final VAT return, and the timeline you can expect from HMRC.
The VAT deregistration process can be completed:
- Online through your VAT online account
- By post using form VAT7
Critical note: Deregistering from VAT cannot be applied for retrospectively. Continue charging VAT until HMRC confirms cancellation.
The Final VAT Return
You must submit a final VAT return covering:
- All sales and purchases up to your deregistration date
- VAT due on qualifying assets on hand (if exceeding £1,000)
- Any outstanding VAT adjustments
If you’re subject to the Capital Goods Scheme, you may need final adjustments as detailed in VAT Notice 706/2.
Important Considerations
Beyond the mechanics of deregistration, there are several ongoing obligations and practical factors to keep in mind. These considerations can affect your cash flow, compliance requirements, and future business decisions.
- Flexibility Period: If compulsory deregistration applies, HMRC often allows your registration to remain open for up to 6 months to help tie up loose ends.
- Record Keeping: Keep all VAT records, invoices, and a list of business assets for 6 years after cancellation, as specified in The VAT Guide.
- Re-registration: Monitor your taxable turnover after deregistering. If it exceeds the registration threshold of £90,000, you must register again within 30 days.
Conclusion
Deregistering from VAT is a significant decision that requires careful planning and attention to detail. Whether you’re facing compulsory deregistration due to ceasing trade or choosing voluntary deregistration because of reduced turnover, understanding the rules around assets on hand, final returns, and timing is essential.
The £1,000 asset threshold and the prohibition on backdating are particularly important to avoid unexpected VAT liabilities or penalties. By following HMRC’s guidelines, maintaining accurate records, and seeking professional advice when needed, you can ensure a smooth transition out of VAT registration whilst remaining compliant with all tax obligations.
Frequently Asked Questions
What is the current VAT deregistration threshold?
The threshold is £88,000 as of 1 April 2024. You can apply to deregister if your taxable turnover in the next 12 months will stay below this amount.
How long does deregistration take?
HMRC typically processes applications within 40 working days. Continue charging VAT until you receive written confirmation of cancellation.
Do I pay VAT on stock when deregistering?
Only if total VAT due on qualifying assets exceeds £1,000. For standard-rated goods (20% VAT), your total stock value must exceed £6,000 (including VAT).
Can I deregister retrospectively?
No, the deregistration date can be either when HMRC receives your application or a later agreed date, but never a past date.
What happens to VAT invoices received after deregistering?
You can reclaim VAT on goods and services received whilst registered, provided you hold proper evidence and haven’t already claimed it.
Will I be penalised for errors during deregistration?
Yes, penalties may apply if you under declare VAT, issue VAT invoices after cancellation, fail to notify HMRC within 30 days, or provide false information.
What if I change from sole trader to limited company?
You can either cancel your existing registration and apply for a new one, or transfer your VAT number to the new entity using form VAT68.
What’s the difference between registration and deregistration thresholds?
The registration threshold is £90,000 (you must register if turnover exceeds this), whilst the deregistration threshold is £88,000 (you can deregister if turnover falls below this). This £2,000 gap prevents businesses from repeatedly registering and deregistering.
Need Expert Help with VAT Deregistration?
The VAT deregistration process involves important decisions about timing, asset valuation, and compliance. At CloudCo Accountants, we help businesses navigate deregistering from VAT smoothly, ensuring you meet all HMRC requirements whilst optimising your tax position.
Contact us today for professional guidance on how to remove VAT registration and manage your business’s tax affairs efficiently.