VAT deregistration: when and how to cancel your registration

Cancelling a VAT registration is called deregistration. Sometimes it is compulsory, for example when you stop trading. Sometimes it is a choice, when turnover has fallen and you would rather not charge VAT or file returns. Either way, the last return needs care, because it is where HMRC collects VAT on the stock and equipment you keep.

When you must cancel your registration

You must 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 registration number
• the legal entity changes, for example a sole trader incorporating a limited company or a partnership becoming a sole trader
• you join a VAT group

If the legal entity changes, the new entity needs its own registration. In some cases, such as a transfer of a going concern, the new owner can apply to keep the existing VAT number using form VAT68.

You can be charged a penalty if you do not cancel when you are required to.

When you can choose to cancel

You can ask HMRC to cancel your registration if your VAT taxable turnover in the next 12 months is expected to be £88,000 or less, the deregistration threshold. HMRC will want to know why turnover is expected to fall and may ask for evidence, such as lost contracts or reduced trading hours.

If you registered voluntarily below the threshold, you can also ask to deregister, although HMRC can refuse if you have been registered for a short time and appear to have registered mainly to reclaim VAT on start-up costs.

Should you deregister voluntarily?

Deregistering removes VAT returns and Making Tax Digital for VAT obligations and means you can stop adding VAT to your prices. That helps businesses selling to consumers, who cannot reclaim VAT.

Against that:

• you can no longer reclaim VAT on purchases and expenses
• business customers who could reclaim your VAT will not notice any saving
• if turnover rises again you must monitor the £90,000 threshold every month and re-register on time
• the final return can trigger a VAT bill on stock and assets

Work out the effect on your margins first. A business with mainly VAT-registered customers and significant VAT-bearing costs often loses money by deregistering. Our voluntary VAT registration guide covers the same trade-off from the other side.

How to cancel

1. Apply through your VAT online account, or on paper form VAT7 if you cannot apply online.
2. Give the reason and the date you want the registration to end, or the date the reason arose for compulsory deregistration.
3. HMRC usually confirms within about three weeks, telling you the cancellation date and that you should not charge VAT after it.
4. File your final VAT return for the period up to and including the cancellation date.

Stop charging VAT from the cancellation date, and update your invoice template, website prices and any automatic billing.

The final VAT return

The final return covers the period from the end of your last return up to the cancellation date. In it you account for VAT on:

• sales made up to the cancellation date
• stock and assets you still hold at the cancellation date, where you reclaimed VAT when you bought them, or acquired them as part of a going concern on which VAT was reclaimed

This deemed supply is valued at what it would cost to replace the goods at the time, not what you paid. If the total VAT due on stock and assets is £1,000 or less, you do not have to pay it.

Example

A bakery deregisters after its turnover falls. At the cancellation date it holds ovens and equipment with a replacement value of £4,500 and stock of £300, all bought with VAT reclaimed. The VAT on them would be £960 (20% of £4,800), which is under £1,000, so nothing is due on them. Had the equipment been worth £6,000, the VAT would be £1,260 and the whole amount would be payable on the final return.

Reclaiming VAT after deregistration

You cannot reclaim VAT on the final return for services you receive after the cancellation date. You can, however, claim VAT on some costs relating to the period when you were registered, such as accountancy fees for preparing the final accounts, using form VAT427. Claims must relate to taxable activities carried on while registered.

Records

Keep your VAT records for six years after deregistration. HMRC can still raise assessments for periods when you were registered, so do not destroy invoices or digital records when the business stops.

Frequently asked questions

What is the VAT deregistration threshold?

£88,000. You can apply to cancel voluntarily if you expect VAT taxable turnover in the next 12 months to be at or below that figure.

How long does VAT deregistration take?

HMRC usually confirms within about three weeks. You must file a final return for the period up to the cancellation date.

Do I pay VAT on my stock when I deregister?

You account for VAT on stock and assets you still hold, on which you reclaimed VAT, unless the total VAT due is £1,000 or less.

Can I keep my VAT number if I sell the business?

The buyer can apply to take over your VAT registration number if the business is transferred as a going concern, using form VAT68. They then take on the liabilities attached to that number as well.

Can I re-register later?

Yes. If your taxable turnover rises above £90,000 in any rolling 12-month period you must register again, and you can register voluntarily at any time.