Deregistration for VAT

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The process of deregistration is as important as that for registration. Errors can be expensive, but there may be some VAT savings to be achieved with careful planning.

Where a business ceases to make taxable supplies, it is required to notify HMRC within 30 days, and has to deregister immediately.

A business can voluntarily deregister at any time if it expects its taxable turnover in the following 12 months to be below £83,000 (the deregistration threshold is always lower than  the registration threshold). Since this is a voluntary choice, it cannot be back dated.

If you have used Cash Accounting, you are required to account for all outstanding output tax and input tax on your final VAT Return. This must be submitted within 2 months of deregistration. This may cause a cash flow issue if debts remain unpaid, so do plan for this.

You can claim some VAT incurred AFTER deregistration, but only if those purchases relate to your taxable business activities before deregistration. Typically, this will cover Solicitor’s and Accountant’s invoices. See HMRC Notice 700/11, chapter 9.

One issue that causes problems is that you are deemed to supply any assets on hand at the date of deregistration, as long as the VAT due is £1,000 or more. This includes unsold stock, vehicles, equipment, and opted land and property. The basic rules are in Notice 700/11, chapter 7. Again, plan for this to avoid a nasty surprise!