VAT Deregistration UK: £88,000 Threshold, Rules and Process

VAT deregistration is the process of cancelling your VAT registration with HM Revenue & Customs (HMRC).

You may need to deregister because you have stopped making taxable supplies. Alternatively, you may choose to deregister because your expected taxable turnover has fallen below the voluntary deregistration threshold.

As at August 2026, the UK VAT deregistration threshold is £88,000. This is lower than the compulsory VAT registration threshold of £90,000.

However, falling below £88,000 does not mean you can simply stop charging VAT. You normally need to apply to HMRC, receive confirmation and deal correctly with your final VAT return, stock and business assets.

This VAT deregistration guide explains when you can cancel your registration, how the £88,000 threshold works and what to do afterwards.

Unsure whether VAT deregistration is right for your business? Message the Real Key team on WhatsApp for practical bookkeeping and VAT support.

Quick answer: when can you deregister from VAT?

You can usually apply for voluntary VAT deregistration if you can satisfy HMRC that your VAT-taxable turnover in the next 12 months will not exceed £88,000.

You must cancel your VAT registration if you are no longer eligible to remain registered. For example, this can happen when you stop trading or permanently stop making taxable supplies.

If cancellation is compulsory, you generally need to tell HMRC within 30 days of the relevant change.

Voluntary deregistration because turnover has fallen cannot normally be backdated. HMRC will confirm the effective cancellation date. Until your position is confirmed, you should not simply stop operating your VAT arrangements.

What does VAT deregistration mean?

VAT deregistration removes a business from the UK VAT register.

Once the cancellation takes effect, you stop operating as a VAT-registered business. That means you should no longer charge VAT on supplies made after the effective cancellation date or issue VAT invoices showing your cancelled VAT number.

You will also normally lose the ability to reclaim VAT on purchases made after deregistration, subject to specific post-deregistration rules.

Deregistration does not, however, erase your previous VAT responsibilities. You still need to complete outstanding returns, maintain VAT records and deal with any VAT due on qualifying stock or assets.

HMRC generally requires VAT records relating to the cancelled registration to be retained for six years.

What is the VAT deregistration threshold in 2026?

The current VAT deregistration threshold is:

£88,000

The compulsory VAT registration threshold is:

£90,000

These thresholds have applied since 1 April 2024 and remain current as at August 2026.

The gap between the two thresholds helps reduce the risk of businesses repeatedly registering and deregistering when turnover moves slightly up and down.

For more information about when a business first needs to register, read Real Key Accountancy's VAT registration guide for sole traders.

How does the £88,000 VAT deregistration test work?

One of the most important points is that voluntary VAT deregistration is not simply based on what you earned during the previous tax year.

HMRC's guidance says you can ask to deregister where you can satisfy HMRC that your taxable turnover during the next 12 months will not exceed the deregistration limit.

You should therefore prepare a realistic forward-looking turnover estimate.

HMRC may want to understand why sales are expected to fall. Examples in its guidance include:

• Reduced opening hours
• The loss of an important contract
• Changes to the way the business operates
• Closing part of the business

Your forecast should reflect the prices you realistically expect to charge after VAT deregistration.

Example: turnover has genuinely reduced

Example: A self-employed consultant has been VAT registered for several years.

A major project ends, and expected VAT-taxable turnover for the next 12 months falls to £72,000.

If the consultant can support that forecast, they may be able to apply for voluntary VAT deregistration because expected taxable turnover is below £88,000.

The consultant should not simply stop charging VAT when turnover drops. An application must be made and the effective cancellation date confirmed by HMRC.

When must you cancel VAT registration?

Deregistration is not always optional.

You must normally cancel your registration when you are no longer eligible to remain VAT registered. Examples can include circumstances where you:

• Stop trading
• Stop making taxable supplies and do not intend to restart them
• Originally intended to make taxable supplies but no longer intend to do so
• Join a VAT group
• Disband a VAT group
• Change the business's legal entity in circumstances requiring cancellation
• Sell the business where the VAT registration is not being transferred appropriately

If you simply change legal structure or sell the business, cancellation is not automatically the only option. In some situations, the existing VAT registration number can be transferred.

HMRC's official VAT cancellation guidance explains the circumstances in which cancellation or another VAT process is required.

If you become ineligible to remain registered, HMRC says you must normally notify it within 30 days or you may face a penalty.

When can VAT deregistration be voluntary?

You may remain VAT registered even when your turnover is below the compulsory £90,000 registration threshold.

This is why a business that previously registered voluntarily does not automatically become deregistered when sales fall.

You can generally request voluntary deregistration where HMRC is satisfied that taxable turnover during the following 12 months will not exceed £88,000.

However, different rules can apply in specialist situations.

For example, the normal £88,000 voluntary deregistration threshold is not available to a non-established taxable person, broadly a business without a UK establishment that makes taxable UK supplies. Such businesses generally cannot deregister merely because turnover is low.

How do you deregister from VAT?

Many businesses can cancel their VAT registration online using their VAT online account.

HMRC also uses form VAT7 where cancellation needs to be completed by post.

You may need to use the postal process in situations including:

• A change of legal status where a new VAT number is required
• Sale of a business where the new owner will not keep the VAT number
• Closure of a VAT group
• A business that stopped trading following liquidation

Your accountant or agent can apply for cancellation on your behalf, although you remain responsible for the accuracy of the information supplied.

Before applying, make sure your bookkeeping is sufficiently up to date to support your turnover estimate and identify any stock or assets that could create VAT on deregistration.

Real Key Accountancy provides bookkeeping support for small businesses where records need organising before VAT figures can be reviewed.

What date does VAT deregistration take effect?

The effective date depends on why your registration is being cancelled.

For compulsory cancellation, the date can relate to when the relevant event happened, such as when you stopped making taxable supplies.

For voluntary VAT deregistration, HMRC's guidance says the effective date can generally be:

• The date HMRC receives your application, or
• A later date agreed with HMRC.

You cannot normally request retrospective cancellation simply because turnover had already fallen below £88,000.

Do not choose your own cancellation date and simply stop charging VAT. HMRC will issue confirmation showing the official effective date.

Do you need to submit a final VAT return?

Yes, in most cases.

After VAT deregistration, you normally need to submit a final VAT return covering the period up to and including your cancellation date.

The final return must account for outstanding VAT and any VAT due on qualifying stock or business assets.

HMRC will tell you the due date. You can also check it through your VAT online account.

Importantly, HMRC says you should not delay the final return because you are still waiting for purchase invoices. There is a separate process for reclaiming eligible VAT discovered after deregistration.

What happens to Making Tax Digital after deregistration?

Once the VAT registration has been cancelled, HMRC says you cannot submit a VAT return through your Making Tax Digital VAT software.

Any VAT return that needs to be submitted after deregistration should instead be sent through your VAT online account, subject to any alternative arrangement HMRC requires.

Do you pay VAT on stock and assets when deregistering?

Possibly.

VAT deregistration can create a final VAT liability for stock and business assets that remain on hand.

HMRC treats certain goods as being supplied immediately before the business ceases to be VAT registered. This is sometimes called a deemed supply.

You generally need to consider assets on which VAT was reclaimed or could have been reclaimed, including items such as:

• Unsold stock
• Machinery
• Furniture
• Computers
• Commercial vehicles where input VAT was recoverable
• Certain interests in land or buildings

However, VAT does not become payable merely because you own assets.

HMRC says you do not need to account for VAT where the total VAT due on the relevant assets would be £1,000 or less.

Example: equipment held at deregistration

Example: A business owns qualifying standard-rated equipment and stock with a total VAT-inclusive current value of £4,800.

At a 20% VAT rate, the VAT element would be £800.

Because total VAT due is no more than £1,000, no VAT would be due under this deregistration asset rule.

If all the relevant assets are standard-rated, HMRC notes that a total VAT-inclusive value of £6,000 or less produces VAT of no more than £1,000.

If the VAT threshold is exceeded, VAT may need to be accounted for on all relevant goods, not simply the amount above £1,000.

Land, buildings, the Capital Goods Scheme and an option to tax can make this calculation considerably more complex.

If you have previously opted to tax a property, HMRC requires additional information as part of the VAT cancellation process.

What changes after VAT deregistration?

Once cancellation takes effect, review the practical side of the business as well as the VAT return.

You may need to:

1. Stop adding VAT to taxable sales from the effective cancellation date.
2. Remove your VAT number from new invoices.
3. Update your accounting or invoicing software.
4. Tell customers using self-billing arrangements that you are no longer VAT registered.
5. Update prices where appropriate.
6. Submit the final VAT return.
7. Pay any final VAT liability.
8. Retain your VAT records for the required period.
9. Continue monitoring turnover in case you need to register again.

HMRC can automatically re-register a business if it later concludes that the VAT registration should not have been cancelled. The business could then become liable for VAT that should have been accounted for during the intervening period.

There is another practical issue for businesses trading internationally. HMRC says that if you have an EORI number, cancelling your VAT registration can also result in the EORI number being cancelled automatically. Check whether you still need an EORI number before completing the process.

Is VAT deregistration always a good idea?

Not necessarily.

Being able to deregister and deciding that you should deregister are two separate questions.

For a business selling mainly to private consumers, deregistration may be attractive because customers cannot normally recover VAT themselves. Removing VAT can therefore give greater flexibility over pricing.

However, remaining registered may still make sense where:

• You expect turnover to rise above the registration threshold again soon.
• You make significant purchases containing recoverable VAT.
• Most customers are VAT-registered businesses and can recover VAT charged to them.
• Deregistration would create a significant VAT bill on stock or assets.
• Your business owns opted commercial property.
• Repeated registration and deregistration would create unnecessary administration.

Before cancelling, compare the likely commercial benefit with the VAT you currently recover on business costs.

Accurate records make that comparison much easier. Real Key Accountancy's small business accounting services include bookkeeping and VAT support where agreed.

Common VAT deregistration mistakes

A few errors can make VAT cancellation considerably more complicated.

Assuming turnover below £90,000 is enough

The voluntary deregistration threshold is £88,000, not £90,000.

The £90,000 figure is the current compulsory registration threshold.

Looking only at last year's turnover

For voluntary deregistration, HMRC focuses on whether expected taxable turnover during the next 12 months will exceed the deregistration threshold.

Your forecast therefore matters.

Trying to backdate voluntary deregistration

Reduced turnover does not normally allow retrospective deregistration.

HMRC generally uses the application date or a later agreed date for voluntary cancellation.

Forgetting stock and equipment

Equipment, stock and certain property can create a final VAT liability.

Check assets before applying rather than discovering the liability while preparing the final return.

Stopping VAT returns immediately

An application does not remove outstanding obligations.

You may still need to complete existing VAT returns and the final return.

Continuing to issue VAT invoices after cancellation

Once your registration has been cancelled, you must not issue VAT invoices for supplies made after the effective cancellation date.

A practical VAT deregistration checklist

Before applying, work through these questions:

• Why are you deregistering?
• Is cancellation compulsory or voluntary?
• Is expected taxable turnover for the next 12 months no more than £88,000?
• Can you support that forecast with your bookkeeping?
• Are sales likely to rise above £90,000 again soon?
• How will deregistration affect customer pricing?
• How much input VAT do you currently reclaim?
• What stock and business assets will you hold on the cancellation date?
• Could those assets create more than £1,000 of VAT?
• Do you own land or buildings affected by an option to tax?
• Are all VAT returns up to date?
• Have you planned for the final VAT return?
• Will cancellation affect an EORI number or other business processes?

If several of these questions are unclear, reviewing the position before submitting the application can prevent avoidable corrections later.

Need help preparing for VAT deregistration?

VAT deregistration can appear straightforward when turnover falls, but the final position depends on more than the £88,000 threshold.

Your turnover forecast, customer pricing, outstanding VAT returns and business assets all need to be considered.

Real Key Accountancy provides straightforward bookkeeping and VAT support for sole traders and small businesses. If your records need reviewing before you apply, you can explore the firm's accountancy and bookkeeping packages or discuss the support you need.

VAT deregistration: key points to remember

VAT deregistration may be available where your expected taxable turnover for the next 12 months does not exceed £88,000.

If you stop being eligible for VAT registration altogether, cancellation may instead be compulsory and HMRC normally needs to be told within 30 days.

Do not simply stop charging VAT because sales have fallen. Apply correctly, use HMRC's confirmed cancellation date and complete your final VAT obligations.

Most importantly, check stock and business assets before deregistering. A business that appears to benefit from cancellation could still face a final VAT liability.

Need help preparing for VAT deregistration?

We can help organise your records, review the figures needed for your application and prepare your bookkeeping for the final VAT return.

Speak to the team on WhatsApp or request a free consultation.