De-register For VAT
Summary of Key Points
- You may de-register if your taxable supplies are less than the de-registration limit – £83,000 from 1 April 2023.
- You should carefully consider the factors in favour and against doing this.
- You may need to account for output tax and pay this before you de-register.
There are strict rules on when VAT de-registration is permitted. Business owners should carefully consider the various factors before they proceed. This note covers only the situation where taxable sales are below the limit – not other situations such as the sale of a business which can lead to de-registration.
When can you De-register?
Any business making taxable supplies under the limit (£83,000 at 1 April 2023) can de-register. Note that this limit is usually slightly lower than the registration limit. “Taxable supplies” includes the value of any zero-rated sales but excludes the value of any VAT-exempt sales, so it is important to know which category your sales fall into if you charge no VAT on some of them.
When it makes sense
It normally makes sense to de-register if the value of taxable supplies is below the limit, and:
- Most of your sales are to customers who are not VAT-registered, or
- Most of your sales are cash – for example a restaurant or shop, or
- You have a significant proportion of zero-rated or low-rated purchases, or
- You have had problems completing VAT returns properly, or
- You have been late with VAT returns and been fined as a result.
When not to De-Register
You should probably keep your VAT registration if any of the following applies:
- You’ve had a drop in taxable sales which you believe will be temporary.
- The majority of your customers are VAT-registered.
- In your industry, VAT-registered businesses are perceived in a better light.
- You regularly reclaim VAT when you submit your returns.
How to De-register
Form VAT7 must be completed and sent to HMRC who will consider your application to de-register. You may stop accounting for VAT only when this application has been accepted, and from the date stated by HMRC when they accept it.
Just as you can claim extra VAT on your first return, so you may have to pay over extra tax when you de-register. The principle here is that if you’ve claimed the input tax on something, but are not now going to account for VAT when you sell it, you need to work out the tax on its current market value.
So you need to calculate the gross market value including VAT of:
- Stock on hand which you claimed input VAT on.
- Assets on hand – such as machinery or vehicles – which you claimed input VAT on.
- Land and property in use by the business which you claimed VAT on.
The good news is that if the total VAT element of these assets is below £1,000 you won’t have to pay anything. This means that if you are considering de-registering and the tax element is just above £1,000 you should consider running down your stocks to get the tax due under £1,000. If you do this, be prepared to defend your market value calculation if you get an enquiry!