How to Deregister from VAT in the UK: A 2026 Guide

Every VAT registered business reaches a point where staying in the VAT system may no longer make sense, and some are required to leave whether they want to or not. You can deregister from VAT once your taxable turnover falls below £88,000, or you must cancel within 30 days if the business stops making taxable supplies. Deregistration is never automatic. You apply to HMRC, keep charging VAT until they confirm the date, submit one final return, and settle any VAT owed on stock and assets you still hold. This guide covers every step, the thresholds, the traps that catch people out, and what changes once your registration ends.

What is VAT deregistration?

VAT deregistration means cancelling your VAT registration so the business stops being part of the VAT system. Once it takes effect you stop charging VAT on your sales, you stop reclaiming VAT on your costs, and you no longer file VAT returns. There are two routes. Voluntary deregistration is your choice, usually because taxable turnover has dropped. Compulsory deregistration is required by law when something changes, such as the business closing or being sold. Either way the mechanics are the same: you apply to HMRC, you carry on charging VAT until they confirm the cancellation, and you send in one last return.

When can you deregister voluntarily?

You can ask to deregister when your taxable turnover falls below the deregistration threshold of £88,000. The test looks forward rather than back. You have to satisfy HMRC that your taxable turnover over the next twelve months will stay under £88,000, so one quiet quarter on its own is not enough.

Notice the gap between the two thresholds. You must register for VAT once turnover passes £90,000, yet you can only cancel once it drops below £88,000. That £2,000 buffer is deliberate. It stops businesses that sit right on the line from registering and cancelling every few months.

The figure that counts is taxable turnover, which is your standard rated, reduced rated and zero rated sales added together. It excludes the VAT itself and leaves out exempt income such as most rent and insurance. If almost all your sales are zero rated you can also apply to leave even while above the threshold, because you charge no output VAT and sit in a repayment position anyway.

When must you cancel your VAT registration?

Some changes force you out, and you have to tell HMRC within 30 days or risk a penalty. You must deregister if you:

• stop trading or stop making any VAT taxable supplies
• sell the business or transfer it as a going concern
• change your legal structure, for example moving from a sole trader to a limited company
• join a VAT group, or your existing VAT group is disbanded
• join the Agricultural Flat Rate Scheme

If you first registered because you intended to trade and those plans then fall through, you also need to cancel. Missing the 30 day window can bring a penalty, so treat the deadline as firmly as the one for registering in the first place.

Do you pay VAT on stock and assets when you deregister?

This is the part that catches people out. When your registration ends, HMRC treats the goods still in your business as a final sale to yourself. It is called a deemed supply, and you may owe VAT on it.

You only account for this VAT on items where you reclaimed the VAT when you bought them. If the total VAT would come to £1,000 or less you pay nothing. In practice that lets you hold up to £6,000 of standard rated goods, measured at their VAT inclusive value, before any VAT falls due.

The rule is all or nothing. Cross the limit and you pay VAT on the whole lot, not just the slice above it. Value the goods at what they are worth now, in their current condition, not what you paid.

Here the VAT due is £2,600, well over the £1,000 line, so the full amount goes on the final return. Items that count include unsold stock, machinery, tools, furniture, computers and commercial vehicles that carried reclaimable VAT. Items that do not include most cars, goods bought under a margin scheme, and anything you never reclaimed VAT on. Keep a list of everything you hold at the cancellation date and its value, even when no VAT is due.

Do you need to submit a final VAT return?

Yes. You file one last VAT return covering the period up to and including your cancellation date. It can be a very short period, sometimes only a few days. Include your normal sales and purchases for that period plus any VAT due on stock and assets.

Bills often arrive after you have filed. You can still reclaim VAT on costs that relate to your time as a registered business using form VAT427, and you have four years to do it. The same form covers a claim for bad debt relief, which is usually simpler to sort out before you cancel than after.

How to deregister from VAT step by step

Most businesses cancel online through their VAT account on the Government Gateway. Some situations need the paper form VAT7 instead, including a change of legal status, a business sale where the new owner keeps the VAT number, a VAT group closing, or cancelling after liquidation.

1. Confirm your reason and the date you want the cancellation to take effect. You cannot backdate a cancellation while you are still trading, so the earliest date is normally the day HMRC receives your request.
2. Sign in to your VAT online account and choose to cancel your registration, or complete form VAT7 if your situation needs the paper route.
3. Give HMRC the details they ask for: your VAT number, the reason for cancelling, and the effective date you want.
4. Carry on charging and recording VAT as normal until HMRC confirms. Nothing changes until that confirmation lands.
5. Wait for the confirmation, which usually arrives within 40 working days and is often quicker.

Watch the Flat Rate Scheme and property rules

A few schemes carry their own rules on the way out, and they are where the larger bills tend to hide.

Flat Rate Scheme

You leave the Flat Rate Scheme the day before your deregistration takes effect. That timing matters, because the VAT on your closing stock and assets is then worked out at the normal rates rather than your flat rate percentage.

Capital Goods Scheme

If you bought property worth £250,000 or more, or computer equipment worth £50,000 or more, and you are still inside the adjustment period, cancelling can trigger a final adjustment that claws back part of the VAT you reclaimed.

Option to tax

An option to tax on a commercial property lasts twenty years and does not end when you deregister. VAT can still be due if you sell that property later, so flag it before you cancel.

What happens after you deregister?

Once the cancellation takes effect your VAT number is closed and you stop charging VAT straight away. Take the number off your invoices, website, emails and receipts. If you raise a VAT invoice by mistake after the cancellation date, put it right with a credit note and hand back any VAT you collected.

Your EORI number, used for importing and exporting, is cancelled automatically. Keep every VAT record, together with the list of stock and assets you held, for six years. HMRC can still ask to see them long after you have left the system.

Can you register again, and can HMRC refuse?

If your turnover climbs back above £90,000 you have to register again. You are given a brand new VAT number rather than your old one, so keep an eye on your rolling turnover if you cancelled because you were close to the line.

HMRC does not have to accept a voluntary cancellation. If it believes your turnover will stay above £88,000 it can keep you registered, and you can ask for a review or appeal. It can also put you back on the register, backdated, if you cancelled when you were not entitled to, so keep your figures and forecasts on file.

Pros and cons of deregistering

Leaving the VAT system suits some businesses and hurts others. Weigh it up before you apply.

Frequently asked questions