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All businesses – whether sole traders or limited companies – must register for VAT when their annual turnover hits £85,000 or within 30 days of expecting it to reach this amount.
However, if and when your turnover falls below this threshold, you plan to switch from operating as a sole trader to a limited company or are closing down your business, you may be eligible to deregister for VAT.
Given VAT can be complicated at the best of times, in this guide we’ve explained everything you need to know about VAT deregistration.
VAT deregistration removes your business from HMRC’s register of companies eligible for paying VAT.
It’s usually a straightforward process. Yet, some important aspects to bear in mind could prove costly if misunderstood.
There are a few conditions that your business could meet. You must deregister from VAT once your business meets one or more of these:
You can – or in some cases, must – deregister from VAT if you meet any of the conditions set out above.
Importantly, deregistration cannot be applied retrospectively.
You can deregister for VAT by appointing a third party (such as SJD Accountancy) to do so for you, or you can notify HMRC by submitting the VAT 7 Form.
The VAT 7 Form is the document you submit to HMRC if you’re no longer eligible to make VAT payments. It’s available online.
You can complete and submit the form online on your Government Gateway account. Or, once completed online, you can print and post it if you prefer.
It takes HMRC around three weeks to confirm your cancellation and the official cancellation date.
However, you’ll be automatically re-registered by HMRC if you didn’t meet the eligibility criteria and will be liable for any VAT you should have paid in the intervening period.
When you deregister, you must account for the VAT on tangible assets you hold, where the VAT-inclusive value would be £6,000 or more.
It’s essential to include any relevant assets previously acquired in a transfer of a going concern, if applicable.
In summary, deregistration for VAT allows you to reduce your company’s tax exposure if it’s no longer eligible to pay VAT – assuming your business conditions meet HMRC’s criteria.
If you have any questions about VAT deregistration or anything related to working through a limited company, please get in touch.
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