VAT deregistration is usually a straightforward process. Yet, there are some important aspects to bear in mind that could prove costly if misunderstood.
Your business must deregister from VAT if:
A business can deregister from VAT if it can prove to HMRC that taxable turnover in the next 12 months will not exceed the threshold (currently £83,000).
Although supplies of capital assets can be ignored in applying this threshold, positive rated supplies of land and buildings must be included. Sometimes, satisfying HMRC of reduced turnover levels can be difficult.
When you deregister, the VAT must be accounted for on tangible assets on hand. And positively rated interests in the land on hand at deregistration where the VAT due would exceed £1,000.
Therefore, the VAT-inclusive value would have to be £6,000 or more if all the assets were standard rated with VAT at 20%. It is important to include any relevant assets previously acquired in a transfer of a going concern, even though no VAT would have been charged at the time.
Yet, assets may be excluded if VAT was not deductible on their original purchase. For example, any goods wholly used for exempt activities (although if the input tax was partially recoverable, such assets must be included).
Deregistration cannot be applied retrospectively. If compulsory deregistration applies, HMRC will often allow the registration to stay open for six months to tie up loose ends.
If you have any questions about your responsibilities on VAT, we're here to help. Additionally, consider reading our guide to VAT.
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