Understanding VAT Deregistration in the UK
VAT deregistration is one of the most misunderstood areas of UK indirect tax. On the surface, it appears to be a simple administrative step—inform HMRC, submit a final return, and move on. In real-world practice, however, VAT deregistration often carries financial consequences that business owners only discover much later, usually during an HMRC compliance check.
After more than 20 years advising UK taxpayers, I have seen VAT deregistration go wrong far more often than it goes smoothly. The reason is rarely dishonesty. More commonly, it is poor timing, misunderstanding turnover thresholds, or failing to deal properly with stock, assets, or VAT schemes.
VAT deregistration is a formal tax event. It must be handled with the same care as VAT registration itself.
When VAT Deregistration Applies
VAT deregistration applies when a business no longer needs—or is no longer allowed—to remain VAT registered. HMRC recognises several circumstances where deregistration is either voluntary or compulsory.
The most common trigger is a fall in taxable turnover. For the 2024–25 tax year, the VAT registration threshold remains £90,000 on a rolling 12-month basis. However, the VAT deregistration threshold is lower. HMRC allows a business to apply for deregistration if it expects taxable turnover in the next 12 months to fall below £88,000.
This distinction is critical. Falling below £90,000 does not automatically remove VAT obligations. VAT continues to apply until HMRC formally confirms deregistration.
Another frequent scenario is business cessation. If a business stops trading, closes a limited company, or sells the business, HMRC must be notified within 30 days. Many directors wrongly assume that closing a company at Companies House automatically deregisters VAT. It does not.
Structural changes can also trigger VAT deregistration. These include incorporating a sole trade, changes to partnership members, or selling a business as a going concern where VAT registration is not transferred.
Voluntary VAT Deregistration Versus Compulsory Deregistration
Voluntary VAT deregistration usually arises where remaining VAT registered no longer makes commercial sense. This is common for consultants, freelancers, tradespeople, and online sellers whose customers are not VAT registered and who find VAT harms competitiveness.
Compulsory VAT deregistration applies where a business ceases making taxable supplies altogether. This includes full cessation or where activities become entirely VAT exempt.
In both cases, HMRC may request evidence. In practice, this often includes turnover forecasts, bank statements, contracts, or recent VAT returns. A simple forecast prepared properly can prevent delays or rejection.
Key VAT Deregistration Thresholds and Rules (2024–25)
| Category | Current Rule |
| VAT registration threshold | £90,000 taxable turnover |
| VAT deregistration threshold | £88,000 expected turnover |
| Deadline to notify HMRC after stopping | Within 30 days |
| Final VAT return deadline | 1 month + 7 days |
| Asset VAT adjustment threshold | Over £1,000 (VAT-exclusive) |
Zero-rated supplies still count as taxable turnover for deregistration purposes. This is an area where HMRC frequently challenges applications.
How to Apply for VAT Deregistration
Most VAT deregistration applications are now submitted online through the HMRC VAT account. The process appears simple, but the decisions made during the application are not.
You must specify:
- The reason for deregistration
- The effective date
- Whether stock or assets remain
Choosing the correct deregistration date is crucial. HMRC may allow deregistration from an earlier date, but backdating increases the risk of errors if VAT was charged incorrectly.
Before applying, I always advise reconciling invoices, VAT returns, and bank receipts. Errors discovered after deregistration are far harder to fix.
What Happens After HMRC Confirms VAT Deregistration
Once deregistration is confirmed, VAT must no longer be charged from the effective date. Accounting software, invoicing systems, and customer communications should be updated immediately.
HMRC will issue written confirmation. This should be retained permanently. HMRC routinely requests proof of deregistration during later compliance reviews.
A final VAT return must then be submitted, covering the period up to the deregistration date.
VAT on Stock and Business Assets at Deregistration
This is where many businesses face unexpected VAT bills.
If you hold stock or assets at deregistration on which VAT was reclaimed, HMRC treats this as a deemed supply. VAT may be payable even though nothing has been sold.
The rule applies if the VAT-exclusive value of those items exceeds £1,000. This includes tools, equipment, vehicles, stock, and sometimes property-related assets.
VAT is calculated on market value, not original purchase cost. Old or slow-moving stock is often still considered to have value by HMRC.
Cash Accounting Scheme and Deregistration Risks
Businesses using the VAT cash accounting scheme face additional complications.
On deregistration, VAT must be accounted for on outstanding sales invoices, even if payment has not yet been received. This can create a sudden VAT liability when cash flow is already under pressure.
Timing deregistration carefully—often after collecting debts—can significantly reduce this risk.
To read more about VAT Deregistration, visit: https://www.protaxaccountant.co.uk/post/how-to-deregister-for-vat
