VAT Deregistration Guide: When, How, and Why You Should Consider Deregistering from VAT

Understanding VAT is like peeling an onion  —  every layer reveals more rules, and it usually ends in tears.  And while VAT isn’t quite the beast that income tax can be, it still trips up many business owners – especially when it comes to deregistration.

Here’s the trap: many assume deregistering from VAT is as simple as signing off and walking away. But timing it wrong or missing a key step? That can cost you.

Let’s walk through what you really need to know – simply, clearly, and with a few personal insights I’ve picked up over the years.

VAT: The Deregistration Trap

Firstly, let’s look at some possible traps a business can fall into when deregistering from VAT that can result in an unexpected bill from HMRC.

Many businesses have faced though challenges lately and some smaller service-oriented businesses that sell directly to consumers have founds themselves below the VAT deregistration threshold (currently £88,000 per year). As a result, they’re considering whether deregistering from Vat could be beneficial.

The reason behind this is that be deregistering, they could either lower their prices by the amount of VAT, making themselves more competitive, maintain their current pricing and boost profits by the VAT savings, or even strike a balance between the two.

Potential Problems

However, before considering deregistering for VAT businesses owners should take into account a potential pitfall. When a business deregisters from VAT, if the VAT on the current value of the assets on hand at the time of deregistration is more than £1,000, it has to be repaid to HMRC; it includes any stock or capital equipment, etc. This could wipe out any potential savings from deregistering from VAT unless the deregistration is going to be permanent rather than temporary until the economy picks up.

Another even bigger worry is the effect of the Capital Goods Scheme (CGS). The CGS applies to the purchase of land or buildings and the refurbishment or extension of existing buildings with a value of more than £250,000 where VAT has been reclaimed. If you change the use of the asset from taxable to exempt (or vice versa) or deregister from VAT within a ten-year period, then you have to adjust the amount of VAT reclaimed.

You could end up either reclaiming more VAT or, more likely, paying some back to HMRC on deregistration.

Example: An Unexpected VAT Bill

Mr and Mrs Smyth bought a small seaside hotel four years ago for £500,000 and the previous owners had opted to tax it (decided to charge VAT on the sale). The VAT was on top of the sale price and totalled £100,000, which they recovered on their VAT return because their business was fully taxable.

Their turnover was originally about £90,000 p.a. but has fallen slowly until they now only turn over £70,000 p.a. They are now below the deregistration threshold and are considering deregistering so they can increase their profits (increased profit = £70,000 x 7/47 = £10,426). They would obviously also have to take account of the input VAT that they could no longer reclaim of ongoing costs which would reduce this amount.

If they deregister now, the CGS will come into play, and they will have to repay some of the VAT. The deregistration will result in a deemed exempt supply of the property in year four of the CGS adjustment period. The remaining six years will be viewed as exempt use, so the calculation will be:

£100,000 x 6/10 (60%) = £60,000

Mr and Mrs Smyth would be extremely unhappy to find that they owe HMRC £60,000 plus the VAT on the stock and fixtures and fittings as well!

One might think that they could avoid the CGS adjustment by opting to tax, but then it would be regarded as a taxable supply at deregistration and they would owe the VAT on the current value of the property which could be even more than the £100,000 claimed!

Based on this, Mr and Mrs Smyth would be much better off remaining registered for VAT and continuing to trade until business improves and their turnover once again goes over the VAT registration threshold, as it would take about five years to break even if they deregistered!

Practical Tip

When a business is thinking about deregistering from VAT, it must consider any input tax that needs to be repaid to HMRC upon deregistration, as well as the input tax on purchases it will no longer be able to reclaim. Therefore, seeking professional advice before proceeding with deregistration is highly recommended.

How Do I Deregister from VAT with HMRC?

Deregistering Online Using Your VAT Account

If your business structure hasn’t changed, the fastest way is online. Head over to your VAT account on the HMRC website and follow the prompts to cancel your registration.

Deregistering by Post Using Form VAT7

Selling your business or changing your company type? You’ll need to do it by post. Use form VAT7 – and if it involves a VAT group, you’ll also need VAT50 and VAT51.

What Details You Need to Provide

Be prepared to share why you're cancelling, your turnover, and the effective date of deregistration.

Who Can Submit the Deregistration Request?

Only the business owner or authorised agent (like your accountant) can submit the request.

How Long Does It Take to Deregister from VAT?

Typical Processing Time

Once you’ve submitted your deregistration request to HMRC — whether online or by post — it usually takes about 3 weeks to process. That said, delays do happen, especially during peak periods like tax return season. I've seen clients wait up to 6 weeks before getting confirmation.

What to Do If You Don’t Hear Back

If it’s been longer than 3 weeks, don’t panic — but do follow up. You can either log in to your VAT online account to check your application status or give HMRC a call. Keep a record of when you submitted your form and any correspondence, just in case.

When to Stop Charging VAT

You should stop charging VAT from the date HMRC confirms your deregistration — not the date you applied. Until that confirmation lands in your inbox (or your postbox), you’re still expected to act like a VAT-registered business. That means issuing VAT invoices and filing returns as usual.

Can I Voluntarily Deregister for VAT?

Conditions for Voluntary Deregistration

Yes, you can — but only if your VAT-taxable turnover for the next 12 months is expected to fall below £88,000 (as of July 2025). This is lower than the registration threshold, which sits at £90,000.

This might apply if your sales are slowing down, you’ve downsized your business, or you’re switching to a different business model.

When Voluntary Deregistration Is Not Allowed

You can't deregister just because you want to reduce admin. If HMRC believes your turnover will remain above the threshold, they may reject your request. Also, if you’re trading solely outside the UK but still make taxable supplies here, you might still need to be registered.

Reasons Businesses Choose to Deregister Voluntarily

Sometimes, deregistering makes commercial sense:

• You mostly sell to the public (who can’t reclaim VAT), so your prices could look more attractive without the VAT.

• You’re retiring or scaling back your operations.

• Your input VAT is minimal, so remaining registered offers no financial benefit.

But as we saw in the case of Mr and Mrs Smyth, it’s not always that simple. You could end up with a surprise bill — so think long-term before jumping ship.

What Happens After Deregistering?

Once HMRC confirms, stop charging VAT. That means:

• Remove your VAT number from your invoices and your website

• Switch to standard invoicing

• Let clients and suppliers know

I once had a client whose customer panicked when they saw no VAT on the invoice – they thought the business had shut down. A quick email would’ve avoided the drama.

Do I Need a Final VAT Return?

Yes, you do. It needs to cover all transactions up to your official deregistration date.

If you’re on the standard scheme, it’s your final quarter. On the cash scheme, only include payments received.

Still getting invoices with VAT after you’ve deregistered? Use Form VAT427 to claim it back. It’s not automatic – you need to ask.

Can I Deregister with VAT-Registered Assets?

Yes, but it’s a bit tricky.

If you keep any assets (stock, equipment, vans – anything you claimed VAT on), HMRC treats it like you’re “selling” them to yourself.

If the VAT on those items is more than £1,000, you might have to repay some or all of it (please see example provided earlier).

Market value is what matters here – not what you paid originally.

What Should I Keep After VAT Deregistration?

Your VAT records must stay on file for at least 6 years. Invoices, VAT returns, notes, correspondence – everything.

HMRC can still investigate you years later. One business we worked with was asked about a printer they bought five years earlier. Luckily, they still had the receipt.

Can HMRC Make Me Deregister?

They can.

If you stop trading, sell the business, or no longer meet eligibility criteria, they might step in. They’ll send you a letter and give you a chance to respond, but once they decide – that’s it.

What If I Should Have Deregistered For VAT, But Didn’t?

HMRC can fine you if you delay. They’ll likely charge VAT on any sales made after the point you should have deregistered. That’s on you, not your customers.

Late action = late VAT = interest charges. And possibly a compliance check.

Can I Be Investigated After VAT Deregistering?

Yes. Your deregistration doesn’t grant immunity.

HMRC may look into:

• Your final return

• Stock valuation

• Any suspicious refunds or irregularities

It’s rare – but if it happens, you’ll be glad you kept clean records.

Do I Still Owe VAT After Deregistration?

Yes. Deregistration doesn’t cancel your debt. If you owe VAT from before, you still have to pay.

If you're struggling financially, HMRC can offer payment plans. But you must call them before things escalate.

Can HMRC Chase Me After My Company Closes?

For limited companies – no, not usually. The business is liable, not the director.

But if HMRC suspects fraud or misconduct, they can pursue directors personally. And yes, that’s scary.

Sole traders? You're on the hook either way. That’s the risk of running solo.

Should You Be VAT Registered At All?

If you’re selling B2B or have lots of input VAT, being registered can save you money and give credibility.

But for B2C businesses, especially those with price-sensitive customers, VAT can hurt competitiveness. I worked with a baker who raised her prices due to VAT – and lost 20% of her regulars.

Final Thought

VAT deregistration isn’t a “set it and forget it” job. It’s full of small decisions that carry big consequences. The upside? Get it right, and life gets a whole lot simpler.

If you’re unsure whether to deregister or need help navigating the process, don’t guess. Speak to Cannon Accountants. A 30-minute conversation could save you months of stress – and possibly thousands of pounds.

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