VAT deregistration: when can you deregister for VAT?

If your business has become smaller, you may be wondering whether you still need to be VAT registered.

You don’t necessarily have to stay registered forever. If your expected taxable turnover falls below the VAT deregistration threshold, you can ask HMRC to cancel your registration.

However, VAT deregistration isn’t always as simple as checking your latest turnover figure. You need to look ahead, and there may also be VAT to pay on stock or business assets.

Here’s what you need to know.

What is VAT deregistration?

VAT deregistration simply means cancelling your VAT registration.

Sometimes you have to do this. For example, you’ll normally need to deregister if you stop trading or stop making taxable supplies.

In other circumstances, it’s your choice. If your turnover has fallen sufficiently, you can apply to deregister voluntarily. Alternatively, you can remain VAT registered.

That choice can be important. Leaving the VAT system can reduce your admin, but you’ll also lose your ability to reclaim VAT on most business purchases.

What is the VAT deregistration threshold?

For the 2026/27 tax year, the VAT deregistration threshold is £88,000.

This is lower than the £90,000 VAT registration threshold.

If you’re already registered for VAT, you can normally ask HMRC to deregister you if you can show that your VAT taxable turnover will be no more than £88,000 over the next 12 months.

Remember that VAT taxable turnover isn’t necessarily the same as your total business income. It includes goods and services that are standard-rated, reduced-rated or zero-rated for VAT. VAT-exempt sales don’t normally count towards the threshold.

How does the £88,000 test work?

One of the easiest mistakes to make is to look only at the turnover you’ve already generated.

HMRC’s test is forward-looking.

To deregister voluntarily, you need to satisfy HMRC that the value of your taxable supplies over the following 12 months will be below £88,000.

Suppose your taxable turnover was £95,000 over the last year. You’ve recently lost a major customer and realistically expect it to fall to £70,000 over the next 12 months.

You may be able to deregister, even though your historic turnover is still above £88,000.

HMRC can ask you to support your forecast. For example, you might have lost a significant contract, reduced your opening hours or otherwise changed the way your business operates.

There’s another wrinkle if you currently include VAT in the prices you charge.

If you simply keep charging customers the same gross amount after deregistration, HMRC may want further evidence that your future taxable turnover will genuinely be below the threshold. You shouldn’t assume that removing the VAT element from your calculations automatically gets you under £88,000.

You can find fuller details in HMRC’s VAT cancellation guidance.

When do you have to deregister for VAT?

Sometimes VAT deregistration isn’t optional.

You’ll normally need to cancel your VAT registration if you stop making taxable supplies and don’t intend to make any more.

That might happen because you’ve stopped trading altogether. It can also happen because the nature of your business has changed and you no longer make supplies that entitle or require you to remain registered.

If you’re no longer eligible to remain registered, you normally need to tell HMRC within 30 days.

Different rules can apply if you’re selling your business or changing its legal structure.

For example, if you move from being a sole trader to a limited company, or sell the business to someone else, you may be able to transfer the existing VAT registration to the new owner or legal entity instead of cancelling it and starting again.

The same applies if your business becomes part of a group of connected companies that register for VAT together under a single VAT number. In that situation, your existing VAT registration may need to be cancelled as part of the change.

Should you deregister for VAT?

Being eligible to deregister doesn’t necessarily mean you should.

Much depends on who buys from you and what your business spends.

If most of your customers are members of the public, deregistering may make your prices more competitive. Alternatively, you may be able to keep your selling prices unchanged and retain more of the amount you charge.

The calculation can look different if most of your customers are VAT-registered businesses. They can usually reclaim the VAT you charge, so deregistering may offer them little or no price advantage.

You also need to consider the VAT you currently reclaim on your own costs. If you regularly spend significant amounts on VATable goods, equipment or services, giving up those VAT reclaims could outweigh the benefits of deregistration.

Before applying, it’s worth looking at the figures rather than treating VAT deregistration as an automatic saving.

How to deregister for VAT

You can normally apply to HMRC online. You can also use form VAT7 if you need to apply by post.

You’ll need to explain why you want to cancel your registration. If you’re applying because your turnover has fallen, HMRC may also need evidence that your taxable supplies over the next 12 months will remain below the £88,000 threshold.

For voluntary VAT deregistration, you can usually choose the date HMRC receives your application or a later date agreed with HMRC.

You can’t normally backdate a voluntary application simply because you now realise your turnover was low enough several months ago.

If HMRC accepts your application, it will confirm your cancellation date. From that date, you must stop charging VAT and stop issuing VAT invoices.

What happens to your final VAT return?

Cancelling your registration doesn’t necessarily mean your VAT obligations end immediately.

You’ll usually need to submit a final VAT return covering the period up to the date your registration ends.

Make sure you include any VAT that remains due. This can include VAT relating to stock and assets you still own when you deregister.

You should also keep the cancellation notice HMRC sends you with your VAT records. HMRC says you should normally retain these records for six years.

Will you have to pay VAT on stock and assets?

This is one of the areas where deregistration can produce an unexpected bill.

When your VAT registration ends, HMRC may treat certain stock and business assets that you still own as though you had supplied them.

This can include unsold stock, machinery, furniture, computers and commercial vehicles if you reclaimed VAT when you acquired them.

You don’t normally need to account for VAT if the total VAT due on the relevant assets would be £1,000 or less.

For example, if all the assets concerned are standard-rated at 20%, no VAT will normally be due if their total VAT-inclusive value is £6,000 or less. Once the value exceeds that amount, you may have VAT to account for on the assets on your final return.

The rules can become more complicated if you have high-value assets, use a VAT scheme or are partly exempt.

What if you’ve opted to tax a property?

Take particular care if your business owns land or buildings that you’ve opted to tax.

HMRC introduced a specific process in 2026 for giving details of previous options to tax when you cancel a VAT registration.

Depending on the circumstances, retaining an opted property can also create a VAT liability when you deregister. If you claimed input VAT when you bought the property, you may need to account for VAT based on its current value.

Property VAT can become complicated very quickly, so it’s sensible to take advice before submitting your deregistration application.

Need help with VAT deregistration?

VAT deregistration can save you money and paperwork, but only if it’s the right choice for your business.

We can help you check whether you qualify, work out the financial effect of deregistering and identify any VAT that could become due when your registration ends.

We can also deal with your VAT returns and other VAT obligations through our VAT Returns Service.

If you’re thinking about deregistering for VAT, get in touch with the THP team today and we’ll help you work out the best next step.