VAT deregistration means cancelling your business's VAT registration with HMRC. Once it's done, you stop charging VAT on sales, stop reclaiming VAT on costs and stop filing VAT returns. Sometimes you can choose to deregister; sometimes you must. This guide explains both, and what to do so there are no surprises on your final return.
Key figure: you can apply to deregister voluntarily if you expect your VAT taxable turnover for the next 12 months to be below £88,000. You must deregister within 30 days if you stop making taxable supplies, for example because you close the business.
When you must cancel your VAT registration
You have to tell HMRC within 30 days if:
- you stop trading or stop making VAT-taxable supplies;
- you sell the business (unless the buyer takes over your VAT number);
- the legal status of the business changes — for example, a sole trader incorporates as a limited company, or a partnership changes;
- you join a VAT group; or
- you're no longer eligible to be registered, for example because you registered on the basis of an intention to trade that didn't happen.
If you don't tell HMRC in time, you may be charged a penalty.
When you can choose to cancel
You can apply for voluntary deregistration if your VAT taxable turnover is expected to be below the deregistration threshold of £88,000 in the next 12 months. HMRC will want to know why you expect turnover to fall, such as fewer contracts, reduced hours or losing a major customer.
The deregistration threshold is a little lower than the registration threshold (£90,000). That gap stops businesses near the line from switching in and out of VAT every few months. For how the registration side works, see VAT registration threshold explained.
Should you deregister voluntarily?
| Deregistering usually helps if… | Staying registered usually helps if… |
|---|---|
| Most of your customers are the public, who can't reclaim VAT | Most of your customers are VAT-registered businesses |
| You have low VAT-able costs | You have high VAT-able costs, such as stock or equipment |
| You want to cut prices or keep more of each sale | You often get VAT repayments, such as when selling zero-rated goods |
| You want less admin | You expect turnover to go back over £90,000 soon |
Tip: the VAT Registration Calculator shows your rolling 12-month turnover against the threshold. If you're only just below £88,000, deregistering could mean registering again soon.
How to deregister
- Apply online through your HMRC VAT online account, or send form VAT7 by post.
- Choose a cancellation date. This is usually the date you apply or a later agreed date. Registration can't normally be cancelled from a date in the past.
- Wait for confirmation. HMRC will confirm the cancellation date and your final VAT return period.
- Keep charging VAT until the cancellation date. Stop charging it from that date, and update your invoices and prices.
- Submit your final VAT return and pay anything owed.
Your final VAT return
Your final return covers the period up to your cancellation date. As well as the usual figures, you must account for VAT on:
- stock you still hold, and
- business assets such as equipment, vehicles or computers,
where you reclaimed VAT when you bought them. The idea is that you're treated as selling them to yourself at deregistration. You only have to pay this if the VAT due on them is more than £1,000.
Example
A shop deregisters holding stock and equipment worth £4,000 at current values, on which VAT was reclaimed. VAT at 20% on £4,000 is £800. Because that's below £1,000, the shop doesn't have to pay it. If the value were £6,000, the VAT would be £1,200, and the shop would have to pay all £1,200.
Selling or changing your business
If you sell your business as a going concern, or change from a sole trader to a limited company, the new owner can sometimes take over your VAT registration number. Both sides apply to HMRC using form VAT68. The new owner then takes on the VAT history of the business, including any debts or errors, so get advice before agreeing to it.
After you deregister
- Don't charge VAT or show a VAT number on invoices after your cancellation date.
- You can't reclaim VAT on purchases made after that date.
- Keep your VAT records for 6 years, as HMRC can still check them.
- Keep an eye on turnover: if it goes back over £90,000 in any rolling 12 months, you'll need to register again.
Frequently asked questions
How long does VAT deregistration take?
HMRC usually confirms within a few weeks. Keep charging VAT and keeping records as normal until you have confirmation.
Can I deregister if my turnover is above £88,000?
Not voluntarily. Unless you have to deregister for another reason, such as closing the business, you need to expect taxable turnover below £88,000 in the next 12 months.
What if I registered voluntarily?
You can usually cancel in the same way. HMRC may ask why, especially if you registered recently.
Official source: GOV.UK: Cancel your VAT registration. Current thresholds are on our UK VAT rates page.