Answers · UK 2025/26
Should I deregister for VAT if my turnover falls below the threshold?
You can voluntarily deregister for VAT once your taxable turnover falls below the deregistration threshold of £88,000 (2026/27), but it is not compulsory unless you have stopped trading or no longer make taxable supplies. Deregistering removes the admin burden of VAT returns but also stops you reclaiming input VAT on purchases, so the decision depends on your customer base and cost structure.
Full answer
VAT deregistration is a genuine choice for many small businesses whose turnover has fallen (or was always) below the deregistration threshold, and the right decision depends heavily on who your customers are and what your cost base looks like. **The deregistration threshold** For 2026/27, you can apply to voluntarily deregister once your expected taxable turnover for the next 12 months is £88,000 or less -- this is lower than the £90,000 registration threshold, creating a deliberate gap so businesses do not bounce back and forth between registered and unregistered status due to small turnover fluctuations around a single threshold. **When deregistration is compulsory** You must deregister (rather than it being optional) if you stop making taxable supplies entirely -- for example, if you cease trading, sell the business, or change your business activities so that you no longer make any VATable sales. **Why a business selling mainly to consumers might want to deregister** If your customers are primarily members of the public or non-VAT-registered businesses who cannot reclaim VAT themselves, charging VAT makes your prices effectively 20% more expensive to them (assuming you pass the VAT charge through in your pricing) -- deregistering removes this competitive disadvantage, potentially making your prices more attractive without needing to absorb the VAT cost yourself. **Why a business selling mainly to other VAT-registered businesses usually should NOT deregister** If your customers are predominantly VAT-registered businesses, they can reclaim any VAT you charge them as their own input VAT, meaning the VAT charge is broadly neutral to them -- in this case, deregistering primarily removes YOUR ability to reclaim VAT on your own business purchases (like equipment, stock, or professional services), which is a straightforward cost with no corresponding customer-facing benefit. **Administrative burden reduction** Deregistering removes the requirement to submit regular VAT returns (quarterly for most businesses, in line with Making Tax Digital requirements), simplifying bookkeeping and reducing the risk of penalties for late or incorrect VAT returns -- a meaningful benefit for very small businesses without dedicated finance support. **Losing input VAT recovery** Once deregistered, you can no longer reclaim VAT on business purchases -- if your business has significant ongoing costs that include VAT (equipment, stock, professional fees, rent on commercial premises subject to VAT), losing this recovery can be a real financial cost that needs weighing against the administrative simplification and any pricing advantage. **Re-registering later** If your turnover subsequently rises back above the registration threshold (£90,000 for 2026/27), you must register again -- there is no permanent exemption once you have deregistered, so businesses with turnover fluctuating close to the threshold should think carefully about whether repeatedly registering and deregistering creates more administrative hassle than simply remaining registered throughout. **Worked example** A sole trader hairdresser with £75,000 annual turnover, serving almost entirely private consumer clients, is currently VAT registered from an earlier period of higher turnover. Deregistering would let them remove VAT from their pricing (or keep prices the same and increase their margin), directly benefiting price-sensitive consumer clients who cannot reclaim VAT -- a strong case for deregistering, assuming their VATable purchases are modest enough that losing input VAT recovery is a smaller cost than the pricing or margin benefit. **Practical tip** Model both scenarios (staying registered vs deregistering) considering your actual customer mix and typical input VAT on purchases, and remember that deregistration is optional (not automatic) once you fall below the £88,000 threshold -- you need to actively apply to HMRC to deregister; it will not happen by itself.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.