VAT Deregistration: How and when to Deregister for VAT

VAT deregistration is compulsory for some and voluntary for others depending on your business’s circumstances.

HMRC expects you to register for VAT if your VAT taxable turnover in the previous 12 months exceeded £88,000 (the VAT threshold), and you anticipate that your turnover will surpass this amount within the next 30 days.

There are a number of reasons why it may be legally necessary or preferable to deregister from VAT.

Just because your business is VAT registered at the moment, does not mean that this will (or should) continue indefinitely.

HMRC allows you to voluntarily deregister for VAT in some cases because it can be more beneficial for your business.

Regulations covering VAT deregistration can be confusing so you should take some time to understand which conditions may apply to your business now and in the future.

This guide gives an overview of these differences and information on how to deregister from VAT.

What are the reasons for compulsory VAT deregistration?

If you are VAT registered because you make taxable goods in the UK there are several situations in which you must deregister.

For businesses that meet the requirements to deregister for VAT you must by law cancel your VAT registration within 30 days.

HMRC will normally use your date of deregistration from when the reason to deregister occured for example the date you stopped producing taxable supplies.

Any of the following circumstances usually necessitate a cancellation of your VAT registration:

• You stop producing taxable goods, supplies or services. You must cancel your VAT registration if your business is registered in the UK and you are not making relevant supplies any more, or you have the intention to stop. Also, you must not be required to register for VAT for any other reason.
• If all of your relevant supplies in the future fall into the 0% rated category, then you are allowed to apply for deregistration voluntarily.
• There are any changes to your legal status for example you are changing from a sole trader or partnership to a limited company.
• Your business is being sold and the new owner isn’t keeping the same VAT number.
• Your business stops trading.
• Any intention or making of taxable goods for sale outside the UK has ceased.
• Any 0% ‘warehoused goods’ are no longer being produced.
• You join or break up (disbanding) a VAT group.
• You join the agricultural flat rate scheme.

Reasons for voluntary VAT deregistration

If your business doesn’t have to legally be registered for VAT it is worth asking the question should I deregister for VAT?

The main reasons you are able to apply for voluntary VAT deregistration are:

• Taxable turnover is under the deregistration threshold in the following year.

Voluntary VAT deregistration typically occurs when a company’s turnover falls below the VAT deregistration limit. In the UK the VAT deregistration threshold is set at £88,000 which is currently £2,000 less than the VAT registration threshold.

The £2000 difference enables companies with turnover close to this amount to remain deregistered which helps reduce the administrative expenses associated with rejoining the VAT scheme.

• Most of your ‘taxable supplies’ are mainly, or entirely 0% – even if your turnover is over the VAT threshold.
• Part of your business is closed and the continuing turnover from the rest does not go over the deregistration limit.
• Businesses with standard rated supplies can apply for voluntary deregistration if their input tax is higher than their output tax.

For VAT deregistration purposes when working out your turnover you should do it on a VAT exclusive basis.

You must give HMRC the reasons why your turnover (excluding VAT) figure is now below the VAT threshold and your predictions for the next year of business.

HMRC need to be convinced that you will stop charging VAT to your clients or take the VAT off your goods’ prices before they will accept your deregistration application.

If your application is successful your VAT deregistration date will be the date you entered on your deregistration form or a mutually agreed upon date between you and HMRC.

Some potential upsides to voluntary VAT deregistration

• You have the ability to reduce your prices by not including VAT which may help you acquire a competitive edge.
• You are not obligated to prepare and submit VAT Returns to HMRC on a quarterly basis. This results in simpler accounting and record/bookkeeping requirements for your business.
• If you use an accountant to complete your VAT returns you can save on accountancy fees.

Some potential downsides to VAT deregistration

• You won’t be eligible to recover the VAT you pay for any goods or services purchased for your business.
• Deregistration may impede the growth of your business with some only prepared to trade with other businesses that are registered for VAT.
• Existing clients might perceive VAT deregistration as an indication that your business is facing difficulties or not performing as well as it used to.
• Not being VAT registered can give the impression that your business is too small or less credible to prospective clients which could reduce the number of potential clients and suppliers willing to work with you.
• To avoid surpassing the VAT registration threshold more financial analysis might be needed to make sure you don’t need to re-register with HMRC.

Other factors effecting VAT deregistration

There are a number of other elements which can influence your VAT deregistration.

All of the following circumstances have specific regulations which can effect a decision to deregister for VAT:

• You use one of the cash or annual accounting schemes.
• You belong to a VAT group.
• You own or supply land or buildings that are opted to tax.
• You use a retail scheme.
• Barrister is your profession.
• If you use the tour operators margin scheme.
• You are an agent representing VAT registered businesses.
• You are a non established taxable person (NETP).

More information is available from HMRC on each of the above VAT related scenarios.

How do I deregister for VAT?

There are two ways to deregister for VAT either online or by post via an onine form.

From the day of your cancellation you must stop charging VAT and keep all of your VAT records for a six year period as per the legislation under making tax digital for VAT.

Deregister for VAT online:

If you are no longer trading and are not part of a VAT group you have the option to cancel your VAT registration online.

This can also be done if your VAT taxable turnover is below £88,000, if you have ceased providing VAT taxable goods or services or if a majority or all of your sales are VAT zero rated.

In list format you have the option to cancel your VAT registration online:

1. If you have ceased trading and are not a part of a VAT group.
2. If your VAT taxable turnover falls below £88,000.
3. If you are no longer selling goods or services that are subject to VAT.
4. If you are seeking an exemption and the majority or all of your sales are VAT zero rated.

To initiate the online cancellation of your VAT registration you will need to have your government gateway user ID and password.

If you apply for deregistration online HMRC will update the status of your application (formal notice) online via your online HMRC VAT account.

Deregister for VAT by post:

HMRC needs you to deregister by post in the following cases:

1. If you have sold your business and the new owner will not be retaining the VAT registration number, cancellation by post is required.
2. If your legal status has changed and you require a new VAT registration number.
3. if your VAT group is disbanding, you must complete a VAT50-51 form and send both forms together to HMRC.

To cancel your registration by post you will typically need to use ‘Form VAT7: Application to Cancel your VAT Registration’. The VAT7 form needs to be completed on screen and then printed.

Before you start the form it’s important to fill out the form in its entirety before printing it as you cannot save a partially completed form.

Once you have completed the VAT7 form and any other necessary forms, print and send them to HMRC at the address found on the VAT7 form.

If you are planning to sell your business or make changes to its legal structure and need to transfer the current VAT registration number form VAT7 cannot be used.

Business Assets and Stocks

At the point of deregistering you have to give account of the VAT on particular business assets and stock that would amount to more than £1,000.

Working out which assets are involved in this rule is a combination of the type of asset, your reasons for deregistering and how you got the asset.

• ‘Tangible goods’ (like business vehicles, stock and computers) and land interests are compulsory inclusions. There are other applicable rules here regarding whether or not you opted to tax these assets.
• ‘Intangible assets’, like goodwill and copyrights, are not included.
• You are able to exclude anything that you did not make a VAT claim for at the point of purchase such as goods with the sole purpose of business entertainment and anything purchased under a VAT margin scheme.

What happens after I have applied for deregistration?

HMRC will process your application within approximately 3 weeks. Their VAT helpline number is 0300 200 3700 if you don’t receive a response or need support and is usually opened Monday to Friday 8am to 6pm.

You will get official notification if HMRC decide to grant your application and deregister you. If you do not get the result you were hoping for you can appeal the decision and if you disagree with this outcome you are entitled to take your case to an independent tribunal.

You do not have to cancel your VAT registration in the following instances:

• If you are changing the legal status or selling a business and wish to retain the same VAT registration number you should transfer your registration instead.
• Your business is being sold and the new owner is keeping the VAT registration number.
• In the event that a single company within a VAT group is closing down, you must complete a VAT50-51 form to update your VAT group information.
• If you are joining a VAT group you must register for VAT and fill out a VAT50-51 form.

Can I re-register for VAT in the future?

The answers is yes and if you find yourself liable to be registered again with HMRC in the future it is crucial to inform them promptly.

Failure to register at the appropriate time may result in HMRC penalties.

To determine if you need to re-register for VAT you can refer to the guide provided by HMRC “Who should register for VAT (VAT Notice 700/1)” which can assist you in making an informed decision.

Many businesses consider it wise to seek a VAT expert to liaise with HMRC on your behalf.

Talking through the implications of VAT for your business(s) with your accountant is always recommended so you have their professional input before taking any action.