In certain circumstances, companies may no longer eligible to be VAT registered, or in others, the company may be looking to voluntarily cancel its VAT registration.
This guide looks at the process to deregister for VAT, on both a compulsory and voluntary basis, including the circumstances in which you must or can ask HMRC to cancel your VAT registration.
What does it mean to deregister for VAT?
You must be registered and account for VAT if your taxable turnover for the last 12 months was over £85,000, known as the VAT registration threshold, unless everything you sell is exempt from VAT. However, where the circumstances of your business have changed, you may no longer be eligible to be VAT registered or may be able to voluntarily deregister for VAT.
In many cases, a business will be looking to voluntarily deregister for VAT because its taxable supplies fall below, or are expected to fall below, the cancellation threshold. If you want to degregister for VAT, your taxable turnover must be less than £83,000. This threshold will remain at this figure for two years, from 1st April 2022 to 31st March 2024. The VAT deregistration threshold is set £2,000 below the registration threshold to avoid the need for businesses trading around the threshold level to have to constantly register and deregister.
However, careful thought must be given as to whether or not cancellation of your VAT registration might be a good option. Deregistering for VAT will mean you will no longer be required to account for and pay VAT, reducing the administrative burden on your business. If your customers are not VAT registered, this can also save them money. Conversely, you will no longer be able to recover the VAT on your own costs and if you have any goods on hand, such as stock or fixed assets, on which you have reclaimed input VAT, you will have to pay output VAT on them to HMRC in your final VAT return if their value is over £1000. If you have opted to tax any land or buildings, you may also have to account for VAT on deregistration.
When to deregister for VAT
There are various circumstances in which a VAT registered business making taxable supplies in the UK will be required to cancel that registration, including where:
- your business has ceased trading
- you have transferred or sold your business as a going concern
- your legal status changes, for example, you are changing your entity from a sole proprietor to a partnership, or a partnership to a limited company, where you will need a new registration number in the name of the new legal entity
- your VAT group is disbanding, where the registered person will cease to exist
- you have joined or are planning to join a VAT group, where a taxable person cannot have more than one active registration (a VAT group is where two or more eligible entities can be treated as a single taxable person for VAT purposes)
- you join the Agricultural Flat Rate Scheme, where you cannot usually be registered as a flat rate farmer and for VAT at the same time.
When can you voluntarily deregister for VAT?
In some cases, you may wish to voluntarily deregister for VAT. You can HMRC ask for voluntary VAT registration cancellation if:
- you are able to satisfy HMRC that your total taxable turnover over the next 12 months will be below the current deregistration limit;
- your turnover exceeds the deregistration limit but your taxable supplies are either solely or mainly zero rated, and you want to apply for exemption from VAT registration — although if you make any standard rated supplies, you can only cancel your VAT registration voluntarily if your input tax normally exceeds your output tax.
To calculate your VAT taxable turnover, you must take the total value of everything you sell that is not exempt from VAT, including zero-rated goods. However, you will not be permitted to cancel your VAT registration if the proposed reduction in your turnover is because you intend to stop trading, or suspend making taxable supplies, for at least 30 days in the next 12 months.
How to deregister for VAT
To cancel your VAT registration, you can apply to deregister online. You will need to sign into your online VAT account using your Government Gateway user ID and password. If you would prefer to cancel your VAT registration by post, you can complete form VAT7. You will need to fill in the form online, then print it out and post it. The postal address is on the form. You will need to fill in the form fully before you can print it off. You cannot save a partly completed form, so you should gather all the information together that you will need before you start.
Before you complete form VAT7, you are advised to read VAT Notice 700/11 ‘Cancelling your registration’, to help you decide if you want or need to cancel your registration. This also sets out specific procedural requirements for certain requests, for example, if you have sold your business and the new owner wishes to keep your VAT registration number, you can instead complete postal form VAT68 and send it to HMRC using the address shown on the form.
It can take approximately 3 weeks for HMRC to confirm a request for VAT cancellation. When you are notified of this confirmation, provided your request is confirmed, you will be given an official cancellation date. This date will depend on whether the deregistration is compulsory or voluntary. If you are required to be deregistered from VAT, you will be deregistered from the date that you ceased to have an entitlement, for example, when you stopped making taxable supplies. If you choose to deregister, you will be deregistered from the date HMRC receives your form, unless you request a later date. HMRC will send confirmation of your cancellation date to your online VAT account or, if you do not apply online, via post.
You must continue to charge VAT on any taxable supplies your business makes until you receive written confirmation of deregistration. You must then stop charging VAT from the date of cancellation, although you will need to submit a final VAT return for the period up until and including the cancellation date. Within this last return, you will need to account for any stock, consumables and other assets you have as of this date if both of the following criteria apply:
- you reclaimed or could have reclaimed VAT when you bought the assets
- the total VAT due on these assets is over £1,000.
You must submit your final VAT return within one month of the official cancellation date, unless you use the Cash Accounting Scheme, in which case you will need to submit your final return within two months of the cancellation date.
What information must be provided to deregister for VAT?
When completing form VAT7, you will be asked to submit the following information to be able to deregister for VAT:
- Your VAT registration number.
- The full name of your business. If your business is a limited company, you must give your company name or if your business is a partnership please give your trading name. If the partnership does not have a trading name, you must provide the names of each partner.
- Your trading name, if different to the name given above.
- The address of your principal place of business, ie; the address from which you normally trade, and whether this address is in the UK
- The correspondence address for your business, if different from the principal place of business address, together with any daytime telephone and mobile number
- The reason why you are applying to cancel your VAT registration, for example, that you have stopped trading or you have stopped making VAT taxable supplies
- If you are applying because you have ceased to trade, the date you stopped trading
- If you are applying on grounds of reduced turnover, the value of taxable supplies you expect to make over the next 12 months, as well as specific details as to why the value of your taxable supplies over the next 12 months will be under the deregistration threshold, for example, reduction in opening hours, a change of business practices or lost contracts
- If you are still trading but only make supplies that are exempt or outside the scope of VAT, the date you stopped making taxable supplies
- If you are still trading but your taxable supplies are either solely or mainly zero rated and you want to apply for exemption from VAT registration, a description of the nature of your supplies and, if you remain registered for VAT, whether or not you will be in a repayment situation. If you answer ‘no’ to this question, you will also need to explain why you believe you are entitled to exemption from registration
- If you are changing your legal entity, the date the change took place, together with a description of the change of legal entity, for example, from a partnership to a limited company, or from a sole proprietor to a partnership etc
- If you have transferred or sold your business as a going concern, the date the transfer took place, the name and address of the new owner, the new owner’s VAT registration number, if the new owner is a member of a VAT group, and whether or not all stocks and assets were transferred
- If you have or are planning to join a VAT group, the date that you joined or propose to do so, plus the name of the representative member and the VAT registration number of the group
- If your VAT group is disbanding, the date it disbanded
- If you want deregister for VAT for any other reason, the reason why and the date you want to be deregistered from
- If you have an Option to Tax on any property (this is an election to waive the land exemption and instead to charge VAT at the standard rate on the supply of land and buildings
- If you use the Cash Accounting Scheme
- Estimate the total VAT inclusive value of stocks and assets you have on hand on which VAT is due, including the value of the property on which an option to tax has been made and VAT has been reclaimed, where you may have to account for VAT on those assets on your final VAT return
- If your business bank account details have changed, your new account number and sort code.
There is a space on the form to provide any additional information, such as an explanation for any request for a later deregistration date. If you need more space, and are sending a hard copy VAT7 by post, you can use a separate piece of paper and attach it to the form.
The form must also be signed, including a declaration that the information contained in the application is true and complete. The declaration must be signed by the sole owner of the business, a partner, a director or company secretary, an officer or official such as a trustee applying on behalf of an unincorporated body, or an authorised agent, although HMRC must be informed by the business that the agent has been authorised to act on its behalf.
What will happen if you fail to deregister for VAT?
If you stop being eligible to be VAT registered, you must cancel your registration within 30 days, otherwise risk being charged a penalty.
Importantly, however, if you cancel your VAT registration in circumstances where you were not entitled to, and this comes to light, HMRC will automatically reregister you for VAT. You will also have to account for any VAT that you should have paid in the interim.
You should let HMRC know promptly if you become liable to be registered again at any time in the future, where there are penalties for failing to register at the proper time. You are advised to read VAT Notice 700/1 ‘Who should register for VAT’ to help you to decide.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
