If your sales have dropped, or you've stopped trading, or your customers are mostly the public, you might be wondering whether you can come off the VAT register. The good news is you often can. The catch is that deregistering isn't just a case of telling HMRC and walking away.
There's a threshold to clear, a deadline to hit, a final return to file, and one VAT trap on your stock and equipment that catches people out every year.
This guide walks you through who can deregister, how the process works with HMRC, and what actually changes once you're off the register. It's written for sole traders and small limited companies in England, Wales and Northern Ireland. We've used the current VAT figures throughout and linked the official gov.uk pages so you can check everything yourself.
What is VAT deregistration?
VAT deregistration is the formal process of cancelling your VAT registration so you no longer have to charge VAT, file VAT returns, or operate under VAT rules.
Once it takes effect, you stop adding the standard rate of 20% to your invoices, and you can't reclaim VAT on what you buy either. You go back to being a business that simply doesn't touch VAT at all.
There are two routes onto this path. Sometimes you're required to cancel because you've stopped being eligible. Other times you choose to cancel because your turnover has fallen and staying registered no longer suits you. The rules differ slightly, so it's worth knowing which camp you're in.
When must you cancel your VAT registration?
You must cancel your registration if you stop being eligible to be registered. According to HMRC, the most common reasons are that you:
- stop trading or stop making VAT-taxable supplies
- sell your business (unless the buyer takes over your VAT number)
- join a VAT group
- change legal structure, for example from a sole trader to a limited company
Here's the part that bites. You have to tell HMRC within 30 days of the change happening. If you miss that deadline, you may be charged a penalty. So this isn't something to leave on the to-do list.
When can you choose to deregister?
You can ask HMRC to cancel your registration voluntarily if your VAT-taxable turnover falls below the deregistration threshold and you expect it to stay there.
This is the route many small businesses take when trade slows down, when a big contract ends, or when they realise that charging VAT is costing them customers. If you sell mostly to the public or to other businesses that can't reclaim VAT, that 20% on your prices is a real competitive disadvantage. Coming off the register can make you cheaper overnight, or hand you a bit more margin.
You can't deregister voluntarily if you're based outside the UK and supplying goods or services to it. For most UK owner-managed businesses, that won't apply.
What is the VAT deregistration threshold?
The figures that matter sit just below the registration line, and it helps to see them side by side.
| Threshold | Amount | What it means | Effective from |
|---|---|---|---|
| VAT registration | £90,000 | You must register once taxable turnover passes this in any rolling 12 months | 1 April 2024 |
| VAT deregistration | £88,000 | You can ask to deregister if taxable turnover will stay below this | 1 April 2024 |
The £2,000 gap is deliberate. It stops businesses bouncing on and off the register every time turnover wobbles around £90,000.
To deregister voluntarily, you need to satisfy HMRC that your VAT-taxable turnover in the next 12 months will be £88,000 or less. "Taxable turnover" means your standard-rated, reduced-rated and zero-rated sales, but not VAT-exempt income and not the VAT itself.
How do you deregister for VAT with HMRC?
For most businesses, the process is straightforward.
- Check you qualify. Either you must cancel (you've stopped trading, changed structure, and so on) or your taxable turnover will stay at or below £88,000 for the next 12 months.
- Apply to cancel. You can usually do this online through your VAT account if you've stopped trading or your turnover has dropped below the threshold. If your legal status has changed, you've sold the business, or a VAT group is disbanding, you cancel by post using form VAT7.
- Wait for confirmation. HMRC will confirm your cancellation date, usually within 40 working days, though it can take longer in busy periods. Keep charging VAT as normal until you have that date.
- File your final VAT return. This covers the period up to and including the cancellation date.
- Stop charging VAT. From the cancellation date, you stop adding VAT to your invoices and you stop reclaiming it on purchases.
Don't stop charging VAT before HMRC confirms the date. Until then you're still registered, and the VAT you collect still belongs to HMRC.
What happens after you deregister?
Three things change the day your registration ends.
First, you stop charging VAT. Your prices to the public can fall, or your margin can rise, depending on how you set them.
Second, you lose the right to reclaim VAT on your costs. That input VAT now becomes part of your expense, which can quietly push your costs up. For a service business with low overheads this barely matters. For a business buying a lot of stock or equipment, it can matter a great deal.
Third, you still have to keep your VAT records for 6 years after deregistration. HMRC can ask to see them, so don't bin the file the moment you come off the register.
You'll also need to handle one final piece of housekeeping that we see tripped over again and again.
The VAT trap on stock and assets
This is the part of deregistration most people don't see coming.
When you deregister, HMRC treats you as if you've made a final sale of any business stock and assets you still hold, where you originally reclaimed VAT on buying them. This is called a deemed supply. You have to account for VAT on those items at their current market value, and include that VAT on your final return.
The logic is fair, even if it stings. You reclaimed the VAT when you bought the goods because you were a VAT business. Now you're leaving, so HMRC wants the VAT back on whatever's left.
There's an important let-off. If the total VAT due on all those assets would be £1,000 or less, you don't have to account for it at all. At the 20% standard rate, £1,000 of VAT means assets with a net (VAT-exclusive) value of £5,000 — gov.uk expresses the same limit as a VAT-inclusive value of £6,000. Cross that, and the whole amount becomes due, not just the slice above it.
In practice, the businesses caught out are the ones holding unsold stock, vans, tools, or expensive kit on the day they deregister. A bit of timing, like running stock down first, can make a real difference. This is exactly the sort of thing worth a quick conversation with an accountant before you apply.
Should you deregister? An illustrative example
Illustrative example. Priya runs a small homewares shop as a sole trader. Her customers are members of the public, so they can't reclaim the VAT she charges. Trade has softened and she expects her taxable turnover over the next 12 months to be around £80,000, comfortably below the £88,000 deregistration threshold.
If she stays registered, she charges 20% VAT on top of her prices. By deregistering, she can either drop her prices to win back customers or hold prices and keep more margin.
But she still holds stock she bought for resale, plus a display fridge and some fittings, all of which she reclaimed VAT on. She works out the current market value of everything on hand:
| Item held at deregistration | Market value | VAT at 20% |
|---|---|---|
| Resale stock | £3,500 | £700 |
| Display fridge and fittings | £1,200 | £240 |
| Total | £4,700 | £940 |
The total VAT due on her stock and assets is £940. Because that's £1,000 or less, the de minimis rule applies and Priya doesn't have to account for any of it on her final return.
Now change one figure. Suppose her resale stock was worth £4,500 instead of £3,500. The VAT on stock would be £900, plus £240 on the fridge and fittings, giving £1,140. That's over £1,000, so the de minimis no longer applies and the full £1,140 becomes payable on her final return. Selling or running down a little stock before she deregisters could keep her under the line.
This is illustrative only. Your own figures, especially the current market value of what you hold, will be specific to your business. If you're close to the £1,000 VAT mark, get the timing checked before you apply.
Want a hand weighing up whether to deregister, and getting the final return right? Talk to a Zmartly accountant and we'll model the numbers for your business before you commit.
Frequently asked questions
Can I voluntarily deregister and then have to register again?
Yes. If your taxable turnover later passes the £90,000 registration threshold in any rolling 12-month period, you must register again. Deregistering isn't permanent, and HMRC expects you to monitor your turnover after you come off the register.
How long does VAT deregistration take?
HMRC usually confirms your cancellation within 40 working days, although it can take longer in busy periods. You must keep charging VAT and meeting your obligations until you receive the confirmed cancellation date.
Do I still need to file a VAT return after deregistering?
Yes, one final return. It covers the period up to and including your cancellation date, and it's where you account for any VAT due on stock and assets under the deemed supply rule. After that, you've no further VAT returns to file.
What happens to VAT on my stock and equipment when I deregister?
If you reclaimed VAT when you bought items you still hold, you may have to account for VAT on their current market value on your final return. But if the total VAT due is £1,000 or less, you can ignore it. At the 20% standard rate that's £5,000 of net asset value (£6,000 including VAT).
How long do I have to keep my VAT records after deregistering?
You must keep your VAT records for 6 years after deregistration. HMRC can ask to see them during that time, so store them safely even though you're no longer registered.
Is deregistering a good idea if my customers are businesses?
Often not. If your customers are VAT-registered businesses, they reclaim the VAT you charge, so it costs them nothing, and staying registered lets you reclaim VAT on your own purchases. Deregistering tends to help most when you sell to the public or to customers who can't reclaim VAT. It's worth a quick look at your numbers either way.
Key takeaways
- You must cancel your VAT registration within 30 days if you stop being eligible, or you risk a penalty.
- You can deregister voluntarily if your taxable turnover will stay at or below the £88,000 deregistration threshold.
- HMRC usually confirms cancellation within 40 working days; keep charging VAT until you have the date.
- You file one final VAT return and must keep your records for 6 years.
- Watch the deemed supply on stock and assets. If the VAT due is over £1,000, it's payable on your final return.
We help sole traders and small companies decide whether deregistering is the right move, handle the HMRC paperwork, and get the final return right. See how our VAT and bookkeeping support works, explore our tax advisory services, or read more about how we work with sole traders and limited companies.
