Deregistering for VAT: Key Considerations for Businesses with Reduced Turnover

If your business turnover falls below the VAT deregistration threshold, it may be time to consider deregistering for VAT.

Deregistration can simplify your accounting processes and reduce administrative burdens. A business that no longer makes taxable supplies must notify HMRC within 30 days.

In this case, the business ceases to be a taxable entity and must submit a request to deregister. If you don’t let HMRC know you are no longer making taxable supplies, you can get a penalty.

If your business is still making taxable supplies but has reduced its turnover below the VAT deregistration threshold (currently £85,000), then you can also apply for deregistration.

The threshold is reviewed periodically by HMRC, so it’s essential to stay updated on the current limits

Once approved, deregistration will take effect from a date agreed with HMRC. The effective date can be immediate, or it can be deferred by up to six months if you wish to continue trading and making taxable supplies for a short period.

This flexibility is useful for businesses anticipating future changes in their operations or turnover.

It is important to note that at the EDC, there may be a deemed supply of goods and assets on hand. Essentially, this means you may have to account for VAT on goods you still hold, such as stock or capital assets.

HMRC treats these as if they were sold at the time of deregistration, and VAT could be payable on their value.

While deregistering from VAT stops your obligation to charge VAT on your sales, some provisions allow for the services incurred after deregistration.

However, this is only applicable if the costs relate to the business activity while it was still registered for VAT. For example, services like legal fees or accounting services that relate to the period before deregistration may still be recoverable

To start the deregistration process, businesses must notify HMRC, either online via their VAT account or by filling out the form VAT7.

You’ll need to provide details of your business, the reason for deregistration, and the preferred EDC. HMRC will confirm the EDC and advise if any VAT on deemed supplies is due.

Please let us know if you have any questions.