VAT deregistration — the £88,000 threshold and when you must cancel your registration

Many owners know the VAT registration threshold, but fewer are clear about the lower threshold that can allow them to leave the VAT system. The two figures do different jobs, and falling between them does not automatically end a registration.

The registration threshold is £90,000 of taxable turnover. A business must register if taxable turnover for the last 12 months goes over £90,000, or if it expects taxable turnover to go over £90,000 in the next 30 days alone. Taxable turnover includes zero-rated and reduced-rated supplies, while VAT-exempt and out-of-scope supplies are excluded.

The deregistration threshold is £88,000. If taxable turnover falls below £88,000, a business can ask HMRC to cancel its registration, provided it is expected to stay below that level. The £2,000 band between £88,000 and £90,000 is deliberate: it stops businesses registering and deregistering repeatedly as turnover moves slightly around a single figure. A business in that band simply remains registered until turnover moves decisively in one direction.

Deregistration is not automatic. The business must apply, and HMRC will confirm the cancellation, usually within 40 working days. Until the confirmed cancellation date, VAT must still be charged and accounted for in the normal way.

There is a separate, stricter rule where a business is no longer eligible to be VAT registered at all. If it stops trading or stops making taxable supplies, it must cancel within 30 days of no longer being eligible, or it may face a penalty. That is different from a voluntary application based on turnover falling below £88,000.

After cancellation, a final VAT return must be submitted for the period up to and including the cancellation date. It must include VAT on stock and other assets held at that date where VAT was reclaimed or could have been reclaimed and the total VAT due on those assets exceeds £1,000. VAT records must be kept for 6 years. In short, check the rolling 12-month figure, confirm the fall below £88,000 is expected to last, apply rather than assuming cancellation, and keep charging VAT until HMRC confirms the date. That final check is worth doing before turnover rises again, because a business that cancels too early may need to re-register.