VAT deregistration removes your business from HMRC’s VAT register and ends your duty to charge VAT, file returns, and pay it over. You cancel either because you have to (you have stopped trading or changed legal form) or because you choose to (your taxable turnover over the next 12 months will stay below £88,000). The application goes through your VAT online account or on paper form VAT7, and HMRC usually replies within 40 working days.
When You Must Cancel
Some events leave you no choice. If your business has stopped making taxable supplies and you do not intend to resume, you must apply to cancel.
A change in legal structure has the same effect. When a sole trader incorporates as a limited company, the old registration attached to the individual has to end, because the company is a separate legal person. You can cancel and let the company register from scratch, or ask HMRC to transfer the existing VAT number to the new entity using form VAT68.
Joining a VAT group also forces cancellation of your standalone registration, because the group files under a single representative member from then on.
Tell HMRC within 30 days of any of these events. Missing that deadline exposes you to a penalty worked out as a percentage of the tax HMRC lost through the late notification, with much higher percentages if the failure was deliberate or concealed.
Cancelling Voluntarily Below the Threshold
If you are registered but your sales have fallen, you can leave the system voluntarily. The test looks forward, not back: you qualify if you can satisfy HMRC that your taxable turnover over the next 12 months will be under £88,000. That sits below the £90,000 registration threshold on purpose, so small fluctuations do not push you straight back onto the register after you cancel.1GOV.UK. How VAT Works – VAT Thresholds
Sales of capital assets do not count toward that figure. If you sell a piece of business equipment, that proceeds figure stays out of the turnover calculation.2Legislation.gov.uk. Value Added Tax Act 1994, Schedule 1
HMRC weighs your projections, not just history. A dip that looks temporary can be refused. You need evidence that the drop is genuine and sustained.
For many smaller businesses the trade is worth it. You stop adding VAT to your prices, which helps when you compete against unregistered rivals, and you shed the quarterly return. The cost is losing the right to reclaim input tax on what you buy.
Overseas Sellers Follow Different Rules
If you are a non-established taxable person, meaning you make taxable supplies in the UK without a UK business establishment, the thresholds above do not apply. Any taxable supply at all triggers registration, and you can cancel as soon as you stop making taxable supplies in the UK.3GOV.UK. VAT Deregistration Manual – VATDREG04150
How to Apply
Most businesses cancel through the VAT online account: log in, go to the registration section, and submit the request. If you cannot file online, complete form VAT7 and post it in. The paper form does not save partway through, so gather everything before you start.4GOV.UK. Register for VAT – Cancel Your VAT Registration
Your application needs to cover:
- The effective date of cancellation, normally the date you stopped making taxable supplies. For voluntary cases this can be the date of the request or a later agreed date. HMRC will not backdate it.5GOV.UK. VAT Deregistration – Effective Date of Cancellation (EDC)
- The reason: ceased trading, change of legal entity, turnover below threshold, or another qualifying ground.
- Your estimated taxable turnover for the next 12 months, if you are cancelling voluntarily.
- The estimated market value of any stock, equipment, or other assets you still hold.
HMRC usually responds within 40 working days, longer in busy periods. Keep charging VAT on your sales until you get confirmation. That confirmation arrives through your online account, or by post if you filed on paper, and shows the official cancellation date.
Selling the Business as a Going Concern
When you sell the whole business as a going concern, the sale itself is normally outside the scope of VAT, so no VAT is charged on the transfer. The buyer can take over your VAT number by submitting form VAT68 alongside their own registration application.6GOV.UK. Transfer a Business as a Going Concern (VAT Notice 700/9)
The transfer is binding and has consequences worth knowing before you sign. The buyer inherits any outstanding VAT liabilities on the registration, including VAT on stocks and assets you keep back. You, as seller, lose entitlement to any VAT repayments or unclaimed input tax, even for periods before the transfer. Both sides have to agree to those terms in writing as part of the application. If neither party wants the number to move, you cancel with VAT7 and the buyer registers afresh. Either route works, but decide before completion, because HMRC needs advance notice of any change in legal entity.
The Final Return and Tax on Stock and Assets
Once cancellation is confirmed, file a final VAT return covering everything up to the official cancellation date. That period can be very short, even a single day, and it still has to be filed on time.7GOV.UK. VAT Notice 700/11 – Cancelling Your Registration
This is where deregistration catches people out. You may owe VAT on stock, equipment, and other assets you still hold on the cancellation date. The reasoning: you reclaimed input tax when you bought those items, and if they are leaving the VAT system with you, HMRC wants that tax back. There is a threshold. If the total VAT that would be due on the remaining assets is £1,000 or less, you owe nothing. For standard-rated goods at 20%, that means a total gross value of £6,000 or less clears you. Above that, you account for VAT on everything on the final return.7GOV.UK. VAT Notice 700/11 – Cancelling Your Registration
Capital Goods Scheme Adjustments
If you hold assets inside the Capital Goods Scheme, typically high-value land, property, or computer equipment, cancellation triggers a final adjustment even if you sit below the £1,000 stock-and-assets threshold.8GOV.UK. Capital Goods Scheme (VAT Notice 706/2)
The adjustment covers all remaining intervals in the item’s adjustment period. For the interval in which you deregister, the adjustment is worked out normally on actual taxable use. For any full intervals remaining afterwards, the asset is treated as used entirely for taxable purposes if the deemed supply on deregistration is taxable, or entirely for exempt purposes if it is exempt. The result goes on the final return. The numbers can be large for businesses holding commercial property, so professional advice before you cancel is usually worth the fee.
Reclaiming VAT After You Cancel
Cancellation does not close the door on input tax completely. If you incur costs after cancellation that relate to your former taxable business, you can reclaim the VAT using form VAT427. Accountancy fees for preparing final accounts or handling matters from your registered days are the usual example.9GOV.UK. Reclaim or Tell HMRC VAT is Due When VAT Registration is Cancelled
The VAT427 has to be completed online in a single session, then printed and posted to the address on the form. For VAT on post-cancellation costs, you have four years from when you incurred the cost. For bad debt relief on debts from your registered period, the deadline is four years and six months from the end of the accounting period in which the entitlement arose.
Records You Still Have to Keep
Cancelling does not end your record-keeping duty. Keep VAT invoices, receipts, and returns for at least six years from the date of issue.10GOV.UK. Compliance Handbook – CH15200 – Record Keeping HMRC can still audit a deregistered business, and those records are your only defence if a question comes up about a past return. Late filing penalties and interest can still land on a deregistered business, so treat the six years as firm.