One of our site visitors asked us this question: “I’ve had a Limited Company for one year and voluntarily registered for VAT, but I find I am not reaching the VAT threshold; can I de-register?”
Yes, you can ask HMRC to de-register your business for VAT if you expect your taxable turnover over the next 12 months to be below the current de-registration threshold of £88,000.
This differs from the VAT registration threshold, which is currently £90,000.
Don’t assume that being VAT registered is in the business’s best interests; if you don’t need to be, de-registering could be a good option.
Before you go ahead with the de-registration process (explained in full later in this article), ask yourself a few questions to make sure you’re doing the right thing and won’t want to change your mind soon. And of course, we’d advise you to talk to your accountant for expert advice.
Ask yourself these questions:
Are my circumstances likely to change?
If you know you have new contracts coming up or expect a significant increase in turnover, you may want to remain VAT registered. In other words, if you anticipate that your total VAT taxable turnover in a 12-month period will exceed £90,000 you’ll have to be registered so it may be easier to stay registered now.
Will de-registering have an impact on my potential business contacts?
Well… it may. Simply because some companies prefer to deal only with VAT-registered businesses, as there can be an associated perception of size and reputation and, while unusual, some may not want to deal with you if you’re not.
Even though I don’t need to be, are there any benefits to me remaining VAT registered?
That somewhat depends on the business you are in. As stated above, being VAT registered can give other businesses confidence to deal with you, as (rightly or wrongly) they will see you as established and reputable.
In addition, once you are deregistered, you won’t be able to reclaim VAT on purchases you make. However, it also means you won’t add VAT to your prices, which could make you more appealing than the competition.
Another benefit (although it may not always feel like it!) is that being forced to maintain your VAT records regularly means that you will usually stay on top of your finances, which is an important part of running your own business. Knowledge is power after all!
How do I de-register for VAT?
So, you’ve decided you want to go ahead with de-registering (of course, we’d advise you to talk to your accountant before getting the ball rolling, just to make sure you’re not missing anything). And now what? What process do you need to follow to legally deregister?
It’s actually remarkably simple. In many cases, you can cancel your registration online through your VAT account. Alternatively, you can complete HMRC’s VAT7 form and send it by post. You can find the current cancellation guidance on GOV.UK here.
HMRC usually confirms the cancellation within 40 working days. If you applied online, confirmation should appear in your VAT online account; otherwise it will arrive by post.
That date of cancellation is important. You should continue charging VAT until HMRC confirms that your registration has been cancelled, and then stop charging it from the official cancellation date.
If you try and deregister, but HMRC later decides that you should not have done, they can automatically re-register you and any VAT that should have been accounted for during that period will still be due.
Just because you’ve de-registered . . . it doesn’t mean there isn’t a final bit of paperwork to do.
You’ll need to complete one more VAT return, covering the period up to and including your cancellation date.
On this return you may also need to account for VAT on stock and assets you still hold if you were entitled to reclaim VAT when you bought them and the total VAT due on those items is more than £1,000.
You do not need to delay the final return simply because you are still waiting for every invoice relating to the period before cancellation. You can still deal with VAT relating to purchases made while you were still registered when the supporting invoice arrives, subject to the normal rules.
You cannot reclaim VAT on purchases made after the cancellation date.
Another thing to note is that you will still need to keep your VAT records for six years.
To be clear, this article answers the question of voluntarily deregistering for VAT. Cancelling registration because you have to, or doing so incorrectly, is a different issue.
Still unsure? Talk to us directly here at Integro and we’ll advise you as to the best thing to do for you and your business.
