Guide to VAT Deregistration

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.

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What is 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.

What are the reasons for VAT deregistration?

There are a few conditions that your business could meet. You must deregister from VAT once your business meets one or more of these:

• It stops making taxable supplies and has no intention to make them in the future, or if you intended to make taxable supplies, but that intention no longer exists.

• If the legal entity changes (e.g. from a sole trader to a limited company) or is sold. However, the new entity or owner could keep the existing VAT number.

• If the company is a corporate body and wants to join a group registration.

• It is the representative member of a group registration and the group is to be disbanded.

• 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 £85,000).

When can I deregister for VAT?

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.

How to deregister for VAT

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.

What is a 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.

How long does VAT deregistration take?

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.

What happens to my company's assets when I deregister from VAT?

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.