How to Deregister for VAT (And When You Should)

Registering for VAT gets all the attention, but knowing when — and how — to deregister can be just as valuable. For a business whose turnover has dipped, whose customers are mainly the public, or that is winding down, staying VAT-registered can mean charging 20% more than competitors for no good reason. This guide explains exactly when you're allowed to deregister, when it actually makes sense, how to do it, and what happens to your stock, assets and final return afterwards.

What does it mean to deregister for VAT?

Deregistering (or cancelling your VAT registration) means HMRC removes you from the VAT system. From your cancellation date you stop charging VAT on your sales, you stop submitting VAT Returns, and you can no longer reclaim VAT on your purchases.

It's the mirror image of signing up in the first place — if you're not yet registered and want the other side of the story, see our step-by-step guide to how to register for VAT in the UK. Deregistration comes in two flavours: compulsory, where the law requires you to cancel, and voluntary, where you choose to because it suits your business.

When can you deregister for VAT?

There are two routes, and they work very differently. One is a legal obligation with a deadline; the other is a choice.

Route	Applies when
You must cancel	You stop trading or stop making VAT taxable supplies, you sell the business, you join a VAT group, or your legal structure changes (for example sole trader to limited company)
You can choose to cancel	You expect your VAT-taxable turnover for the next 12 months to stay below the £88,000 deregistration threshold

Where cancelling is compulsory, you must tell HMRC within 30 days of the event that made you ineligible. Miss that window and you can face a penalty, so a business closure, sale or restructure should always trigger a diary note to deal with VAT.

When should you deregister for VAT?

Being allowed to deregister and it being a good idea are two different questions. Once your turnover dips below £88,000, staying registered is a genuine choice — and the right answer depends almost entirely on who your customers are.

Deregistering often makes sense if:

• Your customers are mainly members of the public or other non-VAT-registered businesses, who can't reclaim the VAT you charge — so your prices effectively look 20% higher than they need to
• You have low input VAT to reclaim (few taxable purchases or overheads)
• You're winding the business down or scaling back permanently
• The admin and software cost of quarterly Making Tax Digital returns outweighs the benefit

Staying registered is usually better if:

• Most of your customers are VAT-registered businesses, who simply reclaim the VAT — so charging it costs them nothing and you keep reclaiming yours
• You reclaim significant VAT on stock, equipment, fuel or other costs
• You expect turnover to bounce back above the threshold soon
• You value the credibility a VAT number can lend with larger clients

If you charge the standard rate, remember that deregistering effectively drops your prices by a fifth to customers who couldn't reclaim it — a real competitive edge for a consumer-facing business. Not sure which rate applies to what you sell? Our breakdown of UK VAT rates for 2026 covers the standard, reduced and zero-rated categories.

How do you deregister for VAT?

For most businesses it's a quick online job. There are two methods, and which one you use depends on why you're cancelling.

Option 1 — Cancel online (most common)

Sign in to your VAT online account (your Government Gateway login) and request cancellation there. This is the route for the everyday cases — you've stopped trading, stopped making taxable supplies, or your turnover has dropped below £88,000 and you want to deregister voluntarily.

Option 2 — Cancel by post using form VAT7

Some situations can't be done online and need the paper VAT7 form sent to HMRC — for example where your legal status has changed, you've sold the business without transferring the registration, a VAT group is disbanding, or trading has ended after liquidation.

Whichever route applies, you'll need your VAT number, the date you became eligible to cancel (or want cancellation to take effect), and the reason. HMRC's official cancel your VAT registration guidance sets out exactly which cases must go by post.

What happens after you deregister?

Cancellation isn't instant, and there are a couple of loose ends to tidy up. Here's the sequence:

Step	What to expect
HMRC confirms	Usually within about 40 working days, HMRC confirms your cancellation date — either when the reason took effect, or the date you requested
Stop charging VAT	From the cancellation date you must stop adding VAT to your invoices
File a final return	You submit one final VAT Return covering the period up to your cancellation date
Account for stock & assets	You may owe VAT on stock and assets you still hold — see below

The one that surprises people is the last step. On your final return you have to account for VAT on business assets and stock you still have on hand at the cancellation date — but only if you reclaimed VAT when you bought them and the total VAT that would be due comes to more than £1,000. If the amount is £1,000 or less, you don't have to pay it. This stops businesses from reclaiming VAT on a van or a pile of stock and then deregistering to keep the goods VAT-free.

Keep your VAT records for at least six years after deregistering, and if any invoices arrive late for work done while you were still registered, you can reclaim that VAT by writing to HMRC after your final return. Getting the final return right is where a good adviser earns their fee — our VAT returns service can prepare and file it so nothing is missed or overpaid.

Common VAT deregistration mistakes to avoid

• Charging VAT after your cancellation date. Once you're deregistered you have no right to add VAT — doing so means collecting tax you'll have to hand over or refund.
• Forgetting the final return. Deregistration doesn't close the account by itself; the final VAT Return still has to be filed.
• Overlooking VAT on stock and assets. The £1,000 rule catches a lot of people out, especially those who recently bought equipment or vehicles.
• Deregistering too soon. If turnover is only briefly down and you expect it to recover above £90,000, you may just have to re-register — and re-registering means going through the whole process again.
• Missing the 30-day deadline where cancellation is compulsory, which can trigger a penalty.

Frequently asked questions

Related: our VAT returns service, our guide to registering for VAT in the UK, and the UK VAT rates for 2026. Official guidance is on the gov.uk cancel your VAT registration page.