When Can You Deregister for VAT?
You can apply for VAT deregistration when:
- Your taxable turnover falls below the £88,000 threshold in the last 12 months, and you expect it to remain there.
- You stop selling taxable goods or services (business closure or pivot to exempt activities).
- You've sold or are about to sell your business.
Note: If turnover reduction is temporary and you expect a rebound, maintaining registration might still be advantageous.
The Deregistration Process—Step by Step
- Monitor Turnover Closely
Track sales using your digital accounting platform to identify qualifying periods quickly. - Submit a VAT Deregistration Application
- Complete form VAT7 online (recommended for speed).
- Provide details: reason for deregistration, date you wish it to take effect, and final turnover figure.
- Wait for HMRC Confirmation
- Expect a response within 2–3 weeks.
- Continue charging VAT and submitting returns until you receive your deregistration date.
- Prepare Your Final VAT Return
- Account for all VAT due up to and including your deregistration date.
- List any remaining stock or assets on which you’ve reclaimed VAT (see next section).
What Happens After Deregistering?
- Stop charging VAT on sales and issuing VAT invoices from your official deregistration date.
- Reclaiming VAT: You can claim input VAT on allowable expenses and purchases made prior to deregistration.
- Assets and Stock: If the total VAT due on remaining business assets and stock (that had input VAT reclaimed) exceeds £1,000, you must account for this VAT on your final return.
- Record Keeping: Keep VAT records for at least six years after deregistration, as HMRC can review your activity for compliance.
Pros and Cons of Deregistration
Pros | Cons |
|---|---|
| Less admin: No quarterly VAT returns | Can’t reclaim VAT on purchases/supplies |
| Simpler invoicing (no VAT calculation required) | May reduce credibility with large B2B customers |
| Improved cash flow (no VAT collected/remitted) | Must adjust prices/processes for new status |
| Can reapply for VAT if turnover recovers | Still need to keep six years of VAT records |
Tip: Weigh potential loss of customer confidence—some clients prefer working with VAT-registered suppliers.
Preparation Tips for a Smooth Transition
- Notify Customers and Suppliers: Communicate clearly about your VAT status change to avoid confusion.
- Update Invoicing and Accounting Systems: Remove VAT fields and numbers from templates and platforms.
- Review Contracts: Some agreements may reference VAT terms; ensure compliance with updated terms.
- Consult with a Tax Adviser: Especially if you own significant business assets or are winding down for sale.
VAT Deregistration Red Flags
- Artificially lowering turnover (e.g., deferring income): HMRC actively reviews such cases and may refuse deregistration.
- Overlap with other taxes: Review your overall tax position, including corporation tax and PAYE, when reorganizing your business.
Inspection and Audit Readiness
Although deregistered, you remain liable for potential HMRC audits related to the periods you were registered. Keep clear, accessible records for at least six years and ensure all historic returns and payments are up to date.
Conclusion
VAT deregistration can be a practical choice when downsizing, changing focus, or simply streamlining compliance. By understanding the process, planning ahead, and consulting a specialist where needed, SMEs and their advisers can ensure a seamless and stress-free transition—while keeping fully compliant with HMRC rules.
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Sources: HMRC VAT Notice 700/11 (Deregistration), ICAEW, Gov.uk VAT registration and deregistration guides, AccountingWEB UK