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As a limited company director or small unincorporated business, you may have had to register for VAT because your annual turnover hit or was expecting to hit the mandatory VAT registration threshold of £85,000. Or you could have made a voluntary registration for VAT with a lower level of business income. But can you and how do you de-register your business if your income level is expected to be lower than £83,000 (the de-registration limit) or you’re closing your business?

Reasons to de-register

There is a list of common criteria that need to be in place before you embark on the de-registration process:

  • You must be confident that your turnover will remain below £83,000 for the next 12 months and have valid reasons for believing so, such as loss of contracts, reduced trading hours etc, or

  • If you’ve ceased trading and closed your business due, for example, to retirement, or

  • If you’re changing from being a sole trader to a partnership/limited company or you have sold your business (but the new owner may want to retain the VAT number).

Timing of de-registration

You must be sure that you meet the criteria. VAT de-registration confirmation from HMRC usually takes around 3 weeks to come through. You can’t request a retrospective de-registration.

Cancelling your VAT registration

If you have an accountant like PayStream acting as your authorised agent with HMRC they can carry out the de-registration process on behalf of your business.

Alternatively, you can go online and de-register through your VAT online account or using the HMRC site: https://www.gov.uk/register-for-vat/cancel-your-registration. You can use the VAT7 form online or in paper form if you prefer.

What happens after de-registration has been confirmed by HMRC

  • You must stop charging VAT on your goods or services

  • Retain your VAT records for up to 6 years

  • Submit a final VAT return up to the date of de-registration within 1 month of that date

  • Account in that return for VAT on any stock or assets you own at the time of de-registration if the VAT due is over £1000

  • Pay over any VAT due or claim an appropriate repayment

VAT de-registration FAQs

Why is the VAT registration threshold £85k but the de-registration threshold only £83k?

The lower figure is set by HMRC so that businesses do not keep coming in and out of VAT registration if their turnover only fluctuates by small amounts.

My accounts operate on a cash basis and my VAT returns before de-registration were based on payments received or made. How should my final VAT return be completed?

Your last VAT return must include all debits and credits up to the date of registration, so any unpaid invoices or purchases made in that period need to be shown. We suggest that you take professional advice if you’re unclear as to how to identify and record these transactions.

I’m changing my business from charging standard rate services to making zero-rated supplies of goods. Can I de-register from VAT?

No. Zero rate goods are still ‘taxable’ but at 0% so you need to continue your registration.

I’ve been through the VAT de-registration process with my company but 18 months later I got a new contract which takes the turnover over the threshold. Can I use the old VAT number again.

No. You’ll need to re-register your company again and obtain a new number.

I voluntarily registered my small company for VAT some time ago. What would be the advantages and disadvantages of de-registering?

Assuming your business does not need to be registered because of its low turnover, by de-registering it can save on having to account for VAT on its supplies and the costs of activities such as making VAT returns. Your company would not be able to deduct VAT on its business expenses. There may also be a potential less of credibility as a substantial trading entity if you don’t charge VAT.

Although de-registering for VAT is relatively straightforward, there can be timing and procedural pitfalls for the unwary. PayStream therefore always advise that you speak to an experienced accountant before making any changes to ensure you to make the right decision. For those using our accountancy service, they should speak with a member of their dedicated accounts team.

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