Deregistering for VAT

If you are no longer eligible to be VAT registered, you must cancel your registration. This is usually a fairly straightforward process, but there is a number of key considerations to keep in mind, as ignoring important rules in this area could prove expensive.

A business must deregister for VAT in the following cases:

  • If it stops making taxable supplies and has no intention of producing them in the future.

  • If the legal entity changes, for instance, from a sole trader to a company.

  • If it is registered because it intended to make taxable supplies, but the intention no longer exists.

  • If the business is sold (although the new owner could retain the VAT number).

  • It is the representative member of a group registration and the group is to be disbanded.

  • It is a corporate body and is looking to join a group registration.

A business is permitted to deregister from VAT if it can prove to HMRC that taxable turnover in the next 12 months will not exceed the deregistration threshold, which currently stands at £83,000. While supplies of capital assets can be emitted from this threshold, positive-rated supplies of land and buildings must be included.

Often, satisfying HMRC of reduced turnover levels can be difficult.

Assets in hand

The treatment of assets in hand is one of the most commonly misunderstood areas of deregistration. During this process, VAT must be accounted for on tangible assets in hand, whereas intangible assets, such as goodwill, are excluded, and positive-rated interests in land on hand at deregistration where the VAT due would exceed £1,000.

Therefore, the VAT-inclusive value would need to be £6,000 or more if all the assets were standard-rated with VAT at 20%. It is important to include any relevant assets previously acquired in a transfer of a going concern, even though no VAT would have been charged at the time.

The assets may be excluded if VAT was not deductible on their original purchase, for instance, cars, goods for business entertainment and any goods wholly used for exempt activities.

Contact us

For assistance with any issues relating to VAT, contact us today by calling 0800 077 4604, or fill out an online enquiry form and we will be in touch.

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