How do I deregister from VAT and when can I?

Full answer

There are two routes out of VAT. Compulsory deregistration applies if you stop trading or stop making taxable supplies, in which case you must cancel within 30 days. Voluntary deregistration is allowed if you can satisfy HMRC that your taxable turnover in the next 12 months will fall below the deregistration threshold, which sits below the GBP 90,000 registration threshold. A key catch is the deemed supply on assets. When you deregister you must account for output VAT on business stock and assets you still own on which you originally reclaimed input VAT, as if you sold them to yourself. This VAT is only payable if the total VAT due on those assets is more than GBP 1,000. Worked example: a business deregisters holding stock and equipment with a current value of GBP 4,000 on which it had reclaimed VAT. Output VAT on that is GBP 4,000 x 20% = GBP 800. Because GBP 800 does not exceed the GBP 1,000 limit, no final VAT is due on the assets. If instead the assets were worth GBP 7,000, the VAT would be GBP 1,400, which exceeds GBP 1,000, so the full GBP 1,400 would be payable on the final return. After cancellation you must stop charging VAT, keep records for the required period, and submit a final return. Use the VAT calculator to value the deemed supply (20% of asset value) and check whether you breach the GBP 1,000 threshold. Confirm the current deregistration threshold and the final-return rules at gov.uk.

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