I’ve updated this post on 26 October 2020 for changes in the latest legislation
In this guide, I’ll show you step by step how to deregister for VAT, share some advice on choosing the right time to cancel and show you the forms you’ll need to fill in (including using a VAT7 form).
How to Deregister for VAT in the UK
The deregistration limit from 1 April 2017 is £83,000. That means you can cancel your VAT registration once the taxable turnover** of your business falls below £83,000. If you are experiencing a temporary drop in turnover below the deregistration limit then you may not want to cancel otherwise you’ll need to register again because the process it is irreversible.
** Taxable Turnover is the total value of sales that would be relevant for charging VAT.
You can cancel either online or by post. Here’s how to find the VAT deregistration form:
How to Deregister for VAT Online
Login to your .GOV tax account and select the option to ‘Deregister for VAT’ on the right hand side
Alternatively if presented with the screen below choose to ‘Change Registration Details’ on the left hand.
How to Deregister for VAT by Post using a VAT7 Form
You can choose to print and complete a VAT7 form which you then post it back to HMRC. The address to send your completed form to is shown on the bottom of the form.
What Date Should You Choose?
Whether you cancel online or by post, you’ll need to choose a date you want to stop accounting for VAT. You cannot backdate your deregistration, the date you choose can either be the date you submit your form or a point in the future. The date you choose could save you money on your final VAT return or even mean you end up with a tax bill, so it’s important to pick the right one. Before you choose your deregistration date, do a quick to check on your:
- Upcoming purchases;
- Stock levels;
- Fixed assets.
Check whether you are expecting to make purchases on which there is VAT that you’d normally reclaim. You may want to consider waiting for these invoices to arrive so you claim the VAT in your final VAT return.
As part of your final VAT
Here’s an example:
Mark sells computer equipment on eBay but his sales have dropped off so he has decided to cancel his VAT registration. He chooses a deregistration date of 1 October 2020.
At this date, he has stock of computer equipment with a market value of £6,500 excluding VAT. On his final VAT return to 1 October 2020, Mark will need to pay over VAT on these goods of £1,300 (£6,500 x 20%). He needs to repay this to HMRC since he intends to sell the computers after he deregisters. HMRC are clawing back a portion of the VAT he claimed on buying the stock.
If Mark wants to avoid paying this to HMRC he can wait until he sells some of his stock to bring him to below the stock limit of £5,000 market value.
Fixed Asset Levels
If the market value of fixed assets is more than £1,000 then you’ll need to pay 20% of this amount over to HMRC on the final VAT return.
Don’t forget to keep all the paperwork to back up your calculations and workings for how you worked out the market value of your stock or assets – in the event of an inspection you would be asked to present these.
What Happens Once You Cancel Your VAT Registration
Once you have submitted your application form, it can take HMRC up to 3 weeks to approve your request to deregister for VAT. Once agreed by HMRC you will ask you to complete a final VAT return capturing the final input and output VAT from your last VAT return to the date your vat number is cancelled.
This return will appear online for completion, much like your previous quarters but will be marked FINAL.
You must continue to account for VAT as normal up until the date that your deregistration takes place. If you are unsure about deregistering for VAT then always contact a professional for support.
Can I Re-Register after a VAT Deregistration?
Yes if your taxable turnover increases again you can re-register for VAT. However, you will need to fill out a new application form and will be issued with a new VAT number. An old VAT number cannot be reactivated.
Deregistering for VAT when Using the Flat Rate Scheme
Where a business deregisters for VAT registration and it is also using the flat rate scheme, there will be two dates leaving dates – one for the flat rate scheme and another for the main VAT registration. The business will leave the flat rate scheme one day before it deregisters fully for VAT. It must prepare all outstanding sales invoices before leaving the flat rate scheme.
Then, on the final day, the business will operate under the rules of standard VAT. That means it can reclaim VAT on purchases on this date. That means it can be beneficial for the business to get as many invoices dated on the final day it is VAT registered so it can claim back all the VAT it can on the final VAT return (subject to the rules of stock and assets).
Read all my VAT Guides
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.