Guide to VAT Deregistration

VAT deregistration is usually a straightforward process. Yet, there are some important aspects to bear in mind that could prove costly if misunderstood.

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When can I deregister for VAT?

Your business must deregister from VAT if:

• It stops making taxable supplies and has no intention to make them in the future.

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

• If the company is sold. However, the owner could keep the VAT number.

• If it registered because it intended to make taxable supplies, but that intention no longer exists.

• 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 £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.

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

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.

Do you have a question about VAT?

If you have any questions about your responsibilities on VAT, simply get in touch with us. Additionally, consider reading our guide to VAT.