If your business has stopped trading or its VATable turnover has fallen below the deregistration limit, you can cancel your VAT registration. However, the process may not always be straightforward. So, what should you be cautious of?
There are three common reasons to cancel your VAT registration. Firstly, if your business(es) has ceased trading. Secondly, if the VATable turnover in the previous twelve months has fallen below the deregistration threshold of £83,000. And thirdly, if you anticipate that the VATable turnover in the next twelve months will be below the deregistration limit.
Trap: In the second scenario, you will need to provide HMRC with a comprehensive explanation to support your application for deregistration.
Tip: Once you have decided to deregister, act promptly, as HMRC will not backdate the cancellation except in the first scenario where all VATable trade has ceased. Your registration will only be cancelled from the date HMRC notifies you.
If your business(es) is still operating, you must continue to charge VAT on your sales until HMRC informs you that your registration has been cancelled unless the supplies are exempt. However, if your business(es) has ceased, this won't be an issue. Nevertheless, if you sell or transfer remaining stock, equipment, or other assets, you must charge VAT unless your application requests cancellation from an earlier date, such as when the trade ceased.
If you are required to cancel your registration, you must notify HMRC within 30 days from the date you are no longer eligible to be registered, i.e. when you stopped making VATable supplies. As mentioned before, in other circumstances, you will remain registered until HMRC notifies you of the cancellation.
Trap: If you have charged VAT on supplies made after the cancellation date, you must send an amended invoice to the customer and, if applicable, refund the VAT they paid.
When deregistering, you must account for VAT on assets held at the date of deregistration if the VAT due on their sale (based on value) would exceed £1,000. Assets include:
Trap: No VAT is payable on the value of land and property if you did not reclaim VAT on its purchase. However, if you have subsequently opted to tax the property and sell it within 20 years following the option, it will be considered turnover for VAT registration purposes. This may require you to re-register and charge VAT.
Trap: Deregistration can pose a challenge for businesses that are partially exempt. If they have partially recovered VAT on any asset, they will have to account for output tax on the full value of the asset, even if they did not recover all the VAT.
If you are deregistering because your business has ceased trading, you must notify HMRC within 30 days. Additionally, you must pay VAT on the value of unsold stock and other goods, such as equipment, unless the VAT amount does not exceed £1,000. If you have opted to tax a property and plan to sell it after deregistration, you may need to re-register.
If you require further guidance or have specific questions regarding whether you need to deregister your business for VAT, we invite you to book a call with our CEO, Elena Meskhi. She possesses extensive knowledge and expertise in VAT regulations and can provide valuable insights tailored to your business situation.