Government statistics reveal that the UK threshold of £85,000 enables approximately 3.55 million small businesses to operate without being Value Added Tax (VAT) registered. If you wish to deregister for VAT, your taxable turnover must be under £83,000. The VAT deregistration threshold is £2,000 below the registration threshold in order to avoid business having to constantly register and deregister.
Reasons for VAT deregistration
It is not always in the best interest of a business to remain VAT registered and there may be circumstances in which deregistering for VAT might be the preferred option. There are two main reasons why a limited company may decide to close its VAT registration:
- it stops making taxable supplies
- it does not expect its taxable turnover to exceed the deregistration threshold
Considerations before deregistering
If you are considering can I deregister for VAT, before you make the decision it is important to review your VAT records and assess whether you are likely to continue to meet the VAT registration thresholds in the future. If your turnover falls below the registration threshold, you may no longer be required to pay VAT, and deregistering could save you time and money. If you are not sure of the implications for your own business and situation, it is wise to seek professional tax advice.
Types of deregistration
If you are a limited company that is registered for VAT, it is important to consider your business, turnover and all surrounding circumstances before you make the decision to deregister. There are two types of deregistration:
- Voluntary deregistration
- Compulsory deregistration
Voluntary deregistration
If you can demonstrate to HMRC that your taxable turnover over the next 12 months will not exceed the deregistration threshold, you can apply for voluntary deregistration. You can also voluntarily deregister for VAT if your income falls below the deregistration threshold.
Note that if you request a voluntary deregistration, HMRC may ask you to provide details on why you anticipate your turnover will fall below the current £83,000 threshold, and you may also be required to provide a projected turnover for the next year.
If you close down a section of your business, you may request voluntary deregistration if you can satisfy HMRC that your remaining taxable turnover for the rest of the year will not exceed the deregistration threshold.
Compulsory deregistration
Deregistration for VAT is compulsory in several situations, including when a business ceases trading and has no intention of making any future taxable sales. Additionally, if a business is sold or joins a VAT group (or the group is disbanded), it must also deregister.
Another instance where deregistration is mandatory is when the legal entity of a business changes, such as when a sole trader establishes a limited company. If a farming business joins the Agricultural Flat Rate Scheme, it is required to deregister for VAT.
How to deregister for VAT
If you are no longer eligible for VAT registration, or if you have ceased trading, deregistering may be the right choice for your business. It is important to note that there are certain rules and requirements for VAT deregistration in the UK, and businesses should consult with their tax advisor or HM Revenue and Customs (HMRC) for guidance on the process:
- Review your VAT records and ensure you are no longer eligible for VAT registration. If your annual taxable turnover falls below the VAT deregistration threshold of £83,000, or if you are no longer making taxable supplies, you may be able to deregister.
- Notify HMRC that you want to deregister by filling out the appropriate VAT form, which you can find on the HMRC website. You can also request to deregister through your online VAT account.
- Once you have submitted your deregistration form, HMRC will send you a confirmation letter, which may take up to 12 weeks to arrive. During this time, you must continue to comply with your VAT obligations.
- Submit a final VAT return to HMRC, which should include any VAT due up to the date of deregistration. This should be done within 30 days of receiving confirmation from HMRC.
- After submitting your final VAT return, you must pay any outstanding VAT due. This may include VAT on goods and services that you provided before your deregistration date, but which were paid for after that date.
- Once you have submitted your final VAT return and paid any outstanding VAT, you can stop charging VAT on your goods and services.
- Reclaim any VAT you paid on business expenses before your deregistration date, provided they were incurred for business purposes and relate to goods or services that were used or to be used for making taxable supplies.
Let us advise you
Deregistering for VAT can be a complex process, and it is important to take the time to fully understand the implications before deciding to deregister. If you are unsure about any aspect of the deregistration process, it is advisable to seek professional advice. We have decades of experience helping businesses and organisations to overcome challenges relating to all aspects of VAT.
Passman Leonard is home to a diverse and qualified team of professionals who are dedicated to providing you with tailored advice and supporting all of your business needs. Whether you are an individual, landlord or businesses, our specialist tax advisors will use their comprehensive knowledge to help maximise your tax efficiencies.
Still wondering Can I deregister for VAT? Get in touch today via email info@passmanleonard.co.uk or call on 01895 434515. We are here to help.
