What is VAT deregistration?
VAT deregistration is the process of cancelling your business's VAT registration with HMRC.
Once your VAT deregistration takes effect, you can no longer charge VAT on your sales. In most cases, you'll also stop submitting VAT returns and won't be able to reclaim VAT on purchases you make after deregistration.
It's important to note that VAT deregistration doesn't mean your business ceases to exist. It simply means your business is no longer registered for VAT and therefore no longer has the same VAT-related obligations.
VAT deregistration may be voluntary or mandatory, depending on the circumstances. We'll explore both scenarios in more detail next.
When should a business deregister for VAT?
Businesses can deregister for VAT either voluntarily or compulsorily, depending on their circumstances.
Voluntary VAT deregistration
You can apply to deregister for VAT if your business meets the VAT deregistration threshold requirements (explained in the next section).
Businesses may choose to deregister for a variety of reasons. For example, a freelance consultant might experience a long-term drop in client work, causing their turnover to fall below the deregistration threshold. Similarly, a retailer that has scaled back its operations, or a business that has shifted its focus to mainly VAT-exempt goods or services, may no longer need to remain VAT registered.
Voluntary deregistration can also help reduce admin, as you’ll no longer need to submit regular VAT returns to HMRC.
Compulsory VAT deregistration
In some situations, businesses are required to deregister for VAT. This is typically the case if:
The business stops trading
The business no longer makes VAT-taxable sales
The business changes legal structure in a way that affects its VAT registration (for example, a sole trader incorporates and starts operating through a new limited company)
Your entire business is transferred as a going concern
If any of these circumstances apply, you'll usually need to inform HMRC and begin the VAT deregistration process.
Note: You must notify HMRC within 30 days of the trigger event.
In the next section, we'll explain the VAT deregistration threshold in more detail, including who is eligible to deregister and how the threshold works in practice.
What is the VAT deregistration threshold?
The VAT deregistration threshold is the amount of taxable turnover your business can generate before it must remain VAT registered.
Currently, the VAT deregistration threshold is £88,000. If you expect your taxable turnover to be less than that over the next 12 months, you may be able to apply to deregister for VAT.
Bear in mind that the threshold applies to taxable turnover, not total income. This generally includes VAT-taxable sales but excludes income from VAT-exempt goods and services.
Good to know: VAT deregistration is not automatic. Even if your turnover falls below the threshold, you'll still need to apply to HMRC if you want to cancel your VAT registration.
Are you eligible (or required) to deregister? A quick checklist
VAT deregistration isn’t available for every business. The following checklist will help you determine your eligibility.
You may be eligible, or even required, to deregister for VAT if:
You expect your taxable turnover to fall below the VAT deregistration threshold over the next 12 months (voluntary deregistration)
Your business has stopped trading (in this case, deregistration is mandatory)
Your business no longer makes VAT-taxable sales (this is another case for compulsory deregistration)
Your business structure has changed in a way that affects its VAT registration — for example, if a sole trader becomes a limited company (this requires compulsory deregistration)
You may need to stay VAT registered if:
You expect your taxable turnover to remain above the VAT deregistration threshold
You regularly reclaim significant amounts of VAT on business expenses
Most of your customers are VAT-registered businesses that can reclaim the VAT you charge
If you’re not sure whether VAT deregistration is the right option for your business, consider seeking advice from an accountant or tax professional before applying.
How to deregister for VAT: step-by-step
If you've confirmed that you're eligible (or required) to deregister for VAT, the next step is to notify HMRC and complete the deregistration process.
Step 1: Gather the necessary information
Before starting your application, make sure you have your VAT registration number to hand. If you're not sure where to find it, check your VAT registration certificate, HMRC VAT account, or a recent VAT return.
You'll also need to know why you're deregistering and, where relevant, the date your business stopped trading or the date you want the deregistration to take effect.
Step 2: Submit your deregistration request to HMRC
Most businesses can apply online through their HMRC VAT account.
Once you've signed in, you'll need to select the option to cancel your VAT registration and complete the online deregistration form. HMRC will ask for information such as the reason for deregistration and the date your deregistration should take effect.
After submitting the form, HMRC will review your request and decide whether your business can be deregistered.
Step 3: Wait for HMRC confirmation
How long does VAT deregistration take? HMRC will notify you once your application has been processed. If your request is approved, you'll receive confirmation of your official VAT deregistration date. Once deregistered, a business should receive confirmation from HMRC within around three weeks.
It's important to continue meeting your VAT obligations until this date takes effect.
Step 4: Stop charging VAT from the deregistration date
Once your VAT deregistration takes effect, you must stop charging VAT on your sales.
You should also update invoices, accounting software, pricing information, and any other systems that currently apply VAT to your products or services.
Step 5: Submit your final VAT return
Even after deregistering, you'll usually need to submit a final VAT return covering the period up to your deregistration date.
This final return allows HMRC to calculate any VAT still owed or due for repayment and formally closes your VAT account.
What happens after VAT deregistration?
Once your VAT deregistration takes effect, your business will no longer be treated as VAT registered by HMRC. This means several things will change.
First, you'll no longer charge VAT on your products or services. Any invoices issued after your deregistration date should not include VAT.
You'll also lose the ability to reclaim VAT on most business purchases made after deregistration. This is one of the most important factors to consider before cancelling your VAT registration, especially if your business incurs significant VATable expenses.
In most cases, you'll no longer need to submit regular VAT returns once your final VAT return has been filed. However, you should continue to keep any VAT records required by HMRC for six years after deregistration.
Finally, your VAT registration number will no longer be active. If your circumstances change in the future and your business needs to register for VAT again, you'll need to complete a new VAT registration process.
The advantages and disadvantages of VAT deregistration
If you're considering voluntary VAT deregistration, it's important to weigh up the potential benefits and drawbacks before making a decision. The right choice will depend on factors such as your turnover, customer base and business expenses.
Potential advantages
Less administrative work: You'll no longer need to submit regular VAT returns or manage VAT accounting in the same way.
Simpler pricing: You won't need to add VAT to your products or services, which can make pricing easier to manage and communicate.
Potentially lower prices for consumers: If most of your customers are members of the public rather than VAT-registered businesses, not charging VAT may allow you to offer more competitive prices.
Reduced risk of VAT-related errors: With fewer VAT obligations to manage, there is less chance of making mistakes on VAT returns or records.
Potential disadvantages
You can no longer reclaim VAT on purchases: This is often the biggest drawback of VAT deregistration, especially for businesses with significant expenses.
You may need to increase prices or absorb costs: If you previously reclaimed substantial amounts of VAT, deregistration could increase your operating costs.
Some customers may prefer working with VAT-registered businesses: In certain industries, being VAT registered can make a business appear more established.
You may need to register again in the future: If your turnover increases and exceeds the VAT registration threshold, you'll need to register for VAT again and resume your VAT obligations.
Before applying for voluntary VAT deregistration, consider how the change could affect your pricing, profitability, customers and long-term growth plans.
Wrapping up
If your business no longer needs to be VAT registered, deregistration could help reduce paperwork and simplify your tax obligations. The key is to make sure you're eligible, understand the implications, and follow the correct process with HMRC.
By reviewing your turnover, business activities, and future plans, you'll be in a stronger position to decide whether VAT deregistration is the right option for your business.
Managing your finances after VAT deregistration? A Tide business account makes it easy to track your income and expenses, stay on top of your cash flow, and keep your records organised. Open a free Tide account today.
FAQs
What is the VAT deregistration threshold?
The VAT deregistration threshold is the level below which a VAT-registered business may be able to cancel its VAT registration. At the time of writing, the threshold is £88,000 of taxable turnover.
Is VAT deregistration mandatory?
Sometimes. Businesses are generally required to deregister if they stop trading, stop making VAT-taxable sales, or undergo a change in legal structure that affects their VAT registration. In other cases, deregistration is voluntary.
How long does VAT deregistration take?
It varies depending on your circumstances and HMRC's processing times. Once HMRC has reviewed your application, it will confirm whether your deregistration request has been approved and provide an official deregistration date.
Can I deregister for VAT and register again later?
Yes. If your circumstances change in the future and you need to become VAT registered again, you can apply for a new VAT registration with HMRC.
What happens to my VAT number after deregistration?
Once your VAT deregistration takes effect, your VAT number is no longer active. You should stop using it on invoices and other business documents from your deregistration date onwards.
Do I need to submit a final VAT return?
Yes, in most cases. After deregistering, you'll usually need to submit a final VAT return covering the period up to your deregistration date.
