An overview of VAT deregistration
According to the rules and regulations implemented by HMRC, whenever a business exceeds an annual threshold of £85,000, it needs to be registered for VAT. In fact, it is a prerequisite for such businesses to register with HMRC and submit VAT return files on timely manner. However, when the taxable supplies are below the limit of £81,000, you can apply for a VAT deregistration (only if you intend). However, it is strictly advisable that you should carefully think before making the decision of VAT deregistration as there are various facts in favour and against doing it.
To permit the process of VAT deregistration, a specific set of strict rules are employed. It is a wise business owner’s move to think of all the factors before making the final move. However, if you no longer trade or make VAT taxable supplies you should deregister at your earliest.
When to go for a VAT deregistration?
VAT deregistration is applicable whenever a particular business makes taxable supplies below the limit of £81,000. Interestingly, the deregistration threshold is slightly lower than the registration limit which is £85,000.
The term taxable supplies includes the amounts of all the zero-rated sales, nevertheless it doesn’t include the value of any VAT exempt sales you make. Therefore, it is exceptionally important for any business owner to know the categories of the sales (on what you charge VAT and what you don’t) for precise taxation.
The most common situation when a business look to deregister from VAT is when their value of taxable supplies is below the limit. In addition to that, a business may go for deregistration upon following situations.
- A vast majority of the particular business’s customers are not registered for VAT
- Largest portion of your sales are done on cash (restaurants, retail shops etc)
- Most of the purchases you make are Zero rated products or low rated purchases
- You continuously experienced issues when completing your VAT returns
- You frequently find it difficult to submit VAT returns on time and you were fined as a result
When it is not the best idea to deregister?
Although there are many possibilities for you to deregister from VAT, you may refrain from deregistering if the following occurrences take place.
- Your taxable sales have dropped, but it looks like to be a temporary issue
- Largest portion of your revenue comes from VAT registered customers
- You are likely to have better reputation in your portfolio and face the competition with confidence because of the VAT registration
- You can reclaim VAT on regular basis whenever you submit the VAT returns
If you are unclear about the analysis, you should probably ask for expertise advice from a VAT expert. With their experience and knowledge, they will analyse all the information pertaining to your revenue, market type and trends before giving you the most appealing solution.
The process of VAT deregistration
After making the decision of deregistering from VAT (as a result of long hard thoughts of course), there are couple of things for you to do in order to complete the process. Firstly, you need to obtain Form VAT7, complete it accordingly and send it to HMRC. They will have a good look on your application and consider favorably if all the necessary information are on order. After HMRC accepted your application and they inform you the date they accepted it, you should stop your accounting (for VAT only) as it is no longer meaningful.
Many business owners have the pleasant experience of claiming extra VAT on their first VAT return. When it comes to deregistration, however, you will be required to pay any extra tax. What they consider at this stage is that if you have already claimed any input tax on a particular item, that doesn’t go to the account for VAT when you sell it back. Therefore, with your accountant, you need to recalculate the tax amount on the current market value.
What’s next?
Generally, after submitting the request for VAT deregistration, it will take 3 weeks for HMRC to send you a date for deregistration. The date can either be the date you stopped the trading or the date you made a request to deregister voluntarily.
After the confirmation of deregistration, you need to stop charging VAT, but you should keep your previous VAT related records for 6 years.
What if you can’t handle deregistration by yourself?
Well, most of the business owners face this problem as they lack of time and knowledge. This is when they need to look for expertise assistance from an external source. There are many professionals in the modern industry, who are willing to handle VAT deregistration processes on behalf of businesses. Make sure to find a highly professional service provider with many years of experience in handling similar type of cases.
