VAT Deregistration Process in the UK: A Comprehensive Guide

Value Added Tax (VAT) is a crucial component of the UK’s tax system, applied to most goods and services sold by businesses. While many businesses are required to register for VAT, there are circumstances where a business might need or wish to deregister. Understanding the VAT deregistration process in the UK is essential for businesses considering this option. This article provides a detailed guide on the process, the reasons for deregistration, and the implications for your business.

What is VAT Deregistration?

VAT deregistration is the process by which a business cancels its VAT registration with HM Revenue & Customs (HMRC). This means the business will no longer charge VAT on its sales and will not be required to submit VAT returns. However, it also means the business will not be able to reclaim VAT on its purchases.

Reasons for VAT Deregistration

There are several reasons why a business might choose or be required to deregister from VAT:

1. Voluntary Deregistration:
   • If a business’s taxable turnover falls below the VAT deregistration threshold, it may choose to deregister voluntarily. As of 2024, the deregistration threshold is £83,000. If your business’s taxable turnover is expected to stay below this threshold, you may apply to deregister from VAT.
2. Ceasing to Trade:
   • If a business stops trading or selling goods and services that are VAT-taxable, it must deregister from VAT. This applies if the business is closing down permanently or switching to selling only VAT-exempt goods and services.
3. Joining a VAT Group:
   • If your business joins a VAT group, it might need to deregister its individual VAT account, as the group will operate under a single VAT number.
4. Changes in Business Structure:
   • If a business changes its legal structure, such as incorporating from a sole trader to a limited company, it may need to deregister from VAT and re-register under the new structure.

When to Deregister for VAT

A business must apply for VAT deregistration within 30 days of meeting the criteria that require deregistration (e.g., ceasing to trade). For voluntary deregistration, you can choose the date on which you want to deregister, but it must be after you notify HMRC.

The VAT Deregistration Process

The VAT deregistration process involves several steps:

1. Assess Your Eligibility:
   • Determine if your business meets the criteria for VAT deregistration, either mandatorily or voluntarily.
2. Complete the VAT Deregistration Form:
   • You can deregister online through your HMRC VAT account or by filling out the VAT7 form if you prefer to submit it by post. The form requires basic information about your business, reasons for deregistration, and the effective date of deregistration.
3. Submit Your Final VAT Return:
   • After applying for deregistration, you must submit a final VAT return covering the period up to your deregistration date. This return should include:
     • VAT on all sales and purchases up to the deregistration date.
     • VAT due on any stock and assets you have at the point of deregistration, if the total VAT is over £1,000.
4. Handle VAT on Assets and Stock:
   • If your business holds any stock or assets on which you reclaimed VAT, and their total value exceeds £1,000, you will need to account for VAT on these items in your final VAT return.
5. Await Confirmation from HMRC:
   • HMRC will process your deregistration request and, if approved, will send you a confirmation notice. This notice will include the effective date of deregistration.
6. Record Keeping:
   • Even after deregistration, you are required to keep all VAT records for six years. These include sales invoices, purchase receipts, and VAT returns.

Implications of VAT Deregistration

Deregistering from VAT has several implications for your business:

• No More VAT Charges: You will no longer need to charge VAT on your sales, which might make your products or services cheaper for customers. However, this also means you cannot reclaim VAT on your business purchases.
• Final VAT Return: Your final VAT return is crucial, as it must accurately reflect all VAT liabilities up to the deregistration date, including VAT on assets and stock.
• Changes in Business Operations: Your business may need to update its pricing, accounting systems, and invoices to reflect the fact that it is no longer VAT registered.
• Potential Tax Liabilities: If you have significant assets or stock, you might have a VAT liability on them at the point of deregistration, which could impact your business finances.

Re-registering for VAT

If your business’s circumstances change after deregistration (e.g., your turnover increases above the VAT registration threshold again), you can re-register for VAT. The process involves applying for a new VAT registration number and starting to account for VAT on your sales and purchases again.

Conclusion

VAT deregistration can be a straightforward process if you understand the steps involved and the implications for your business. Whether you are voluntarily deregistering due to a decrease in turnover or are required to deregister because of business closure, it’s essential to handle the process correctly to avoid any potential issues with HMRC. Always ensure your final VAT return is accurate and that you keep all necessary records for the required period. If in doubt, consider consulting with a tax professional to guide you through the process.