What is VAT deregistration? 

VAT deregistration is when you no longer charge VAT on sales or submit VAT returns. Businesses typically do this when they stop trading, their turnover drops below the VAT deregistration threshold, or they switch to selling VAT-exempt goods or services.

But some businesses choose to deregister voluntarily, to cut down on admin, improve cash flow, or simplify their accounting. 

So, should you do it? 🤔

Why deregister for VAT?

Why might you deregister for VAT? It’s a good question! There are two main reasons:

Compulsory VAT deregistration 

HMRC requires you to deregister if:

• You stop trading ✋
• You switch to VAT-exempt sales
• You sell your business 👋
• You fall below the VAT deregistration threshold (£88,000) 

Voluntary VAT deregistration 

Even if you don’t have to deregister, you might choose to if your taxable turnover stays below the VAT deregistration threshold. Why?

• Less admin (no more VAT returns) 🎉
• Simpler accounting 
• Cash flow boost 😏

But before you jump ship, consider the downsides, like losing the ability to reclaim VAT on purchases. 

Advantages and disadvantages of VAT deregistration 

Deregistering for VAT can simplify things, but it’s not always the best move. Let’s weigh up the pros and cons: 

Advantages of VAT deregistration 

✅ Less admin: that means no more VAT returns, record-keeping, or dealing with HMRC. 

✅ Better cash flow: you keep all the money from sales instead of setting aside VAT for HMRC.

✅ Lower prices for customers: if your clients aren’t VAT-registered, they’ll benefit from not paying VAT on your products or services. 

✅ Simpler bookkeeping: no need to track VAT on expenses or sales.

Disadvantages of VAT deregistration 

❌ No more VAT reclaims: you won’t be able to claim back VAT on business expenses.

❌ Perceived credibility: some businesses and clients prefer working with VAT-registered companies.

❌ Unexpected VAT bills: you might have to pay VAT on stock or assets you keep after deregistering.

Before making a decision, weigh these factors carefully, especially if you still have big business expenses.

When must you deregister for VAT?

VAT deregistration isn’t always optional, sometimes, HMRC requires it. If your business stops trading, you can’t stay VAT-registered because, well, no sales = no VAT. 

If you switch to selling VAT-exempt goods or services, you’ll also need to deregister for VAT. 🛑 Selling your business? The new owner has to sort out their own VAT registration. 

And if your turnover drops below the VAT deregistration threshold with no sign of bouncing back, HMRC expects you to deregister within 30 days. 📉

If none of these situations apply but your turnover is below the VAT deregistration threshold, you can choose to deregister voluntarily but keep in mind it could still affect your business finances.

What’s the VAT deregistration process?

Once you’ve decided to deregister for VAT, it’s time to take action. Whether you prefer the convenience of doing things online or the traditional paper route, the process is pretty straightforward. Let’s walk through the options: 

Deregister online 

The quickest and easiest way to deregister for VAT is online via your HMRC business tax account. You’ll need to log in to your business account and follow these simple steps:

1. Go to the “VAT” section in your business account.
2. Select “Deregister for VAT” and confirm your details.
3. Follow the prompts to complete the cancellation process.

HMRC will be notified automatically, and you’ll receive a confirmation once the VAT deregistration process is complete! 🙌

Deregister by post 

Prefer to do it the old-fashioned way? You can also deregister for VAT by sending a letter to HMRC. 📬 In the letter you should include your: 

1. VAT registration number
2. Business name
3. Reason for deregistering

You’ll also need to confirm the date you want the VAT deregistration to take effect. Just keep in mind, that doing it by post takes longer, so be sure to give yourself enough time to avoid any delays! ⏳

What happens after VAT deregistration?

Once you’ve deregistered for VAT, you still have a few things to keep track of, but don’t stress, it’s manageable! Here’s what comes next:

Final VAT returns: you’ll need to submit a final VAT return for the period up until the deregistration date. 📝 This will include any VAT you owe and any VAT you’re entitled to reclaim.

Pay VAT on remaining stock: if you have stock worth more than £1,000 when you deregister, you might need to pay VAT on it. This could also apply to assets like equipment or machinery. This is considered a ‘deemed supply,’ meaning you’re treated as if you’ve sold the items, and VAT is due on their market value at the time of deregistration. 

Keep records: even after deregistering, you’ll still need to keep your VAT records for at least six years. HMRC might want to review them down the line, so keeping things neat and tidy is always a good idea. 📂

Changes to your invoices: you’ll no longer be able to issue invoices with VAT, so make sure to update your business paperwork accordingly.

VAT deregistration can simplify things, but it’s essential to stay on top of your responsibilities. If you’re unsure about any of the steps, consider getting some professional advice to make sure everything’s sorted. 😌

Is VAT registration right for you? 

VAT deregistration can offer significant benefits, from reducing admin to improving cash flow – but it’s not a one-size-fits-all solution. Before you make the leap, consider the full picture.

A key question to ask is whether it’s more beneficial for your business to stop charging VAT or to continue reclaiming it, especially if you’re eligible for voluntary registration.

And remember, if you’re ever unsure, professional tax advice can help you weigh up the pros and cons!