---
title: "What is VAT deregistration? | 2026/27 UK Guide"
description: "To accurately answer *what is VAT deregistration*, practitioners must define it as the statutory process of removing a business from the VAT register, thereby terminating its requirement to charge output tax and its entitlement to reclaim input tax on future purchases.…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/what-is-vat-deregistration/"
updated: "2026-08-11"
category: Limited Company
---

# What is VAT deregistration? | 2026/27 UK Guide

To accurately answer *what is VAT deregistration*, practitioners must define it as the statutory process of removing a business from the VAT register, thereby terminating its requirement to charge output tax and its entitlement to reclaim input tax on future purchases.

For the 2026/27 tax year, the rules dictate whether this cancellation is compulsory or voluntary, how it impacts assets still owned by the business, and the strict timelines that apply.

## Compulsory VAT Deregistration

A business cannot simply hold onto a dormant VAT number indefinitely. Compulsory deregistration applies when a taxable person ceases to make taxable supplies entirely, such as when a business closes down or ceases trading.

Under paragraph 13(2) of Schedule 1 to the Value Added Tax Act 1994 (VATA 1994), if HMRC is satisfied that a registered person has ceased to be registerable, they may cancel the registration.  The business has a strict statutory duty to notify HMRC within 30 days of ceasing to make taxable supplies.  If the business fails to submit this notification on time, it may be liable for a [financial penalty](https://www.accountingfirms.co.uk/blog/when-is-the-tax-deadline-for-expats/) under Section 69 of VATA 1994.

However, HMRC advises deferring compulsory deregistration if the trader still has goods on hand and satisfies HMRC of their genuine intention to sell them.

## Voluntary Deregistration and the £88,000 Threshold

If a business continues to trade but experiences a drop in revenue, it may apply for voluntary deregistration. Paragraph 13(1) of Schedule 1 to VATA 1994 allows a registered person to request cancellation if they satisfy HMRC that they are no longer liable to be registered.

For the 2026/27 [tax year](https://www.accountingfirms.co.uk/blog/good-timing-can-save-a-lot-of-tax/), the voluntary deregistration threshold is **£88,000**.

A business can apply to deregister if it can satisfy HMRC that its taxable turnover in the next 12 months will not exceed this £88,000 limit. The government intentionally sets this deregistration threshold £2,000 lower than the £90,000 registration threshold to prevent businesses trading around the threshold level from having to constantly register and deregister.

## The Non-Retrospective Rule

Clients often attempt to backdate their deregistration to reclaim past compliance costs or avoid output tax on historical sales. This is generally not permitted.

Under paragraph 13(1) of Schedule 1 to VATA 1994, HMRC shall cancel the registration "with effect from the day on which the request is made or from such later date as may be agreed between them and him."

The First-tier Tribunal rigidly enforces this non-retrospective principle. In *TC 01535*, a retailer attempted to backdate her deregistration application to a previous financial year when her turnover was clearly below the threshold.  The tribunal affirmed that deregistration cannot be retrospective, meaning the trader remained fully liable for output tax on all supplies made prior to the actual date of the deregistration request.

## Assets on Hand: The Deemed Supply and £1,000 De Minimis

One of the largest tax traps during deregistration involves the assets and stock the business still owns.

To prevent a deregistered business from obtaining an unfair advantage by retaining VAT-free goods, paragraph 8 of Schedule 4 to VATA 1994 creates a "deemed supply".  When a person ceases to be a taxable person, any goods on hand that form part of the business assets and on which input tax was previously claimed are deemed to be supplied by the business immediately before deregistration.

This rule forces the business to calculate and pay output tax on the current market value of those remaining assets. This applies to physical stock, plant and machinery, and even land and property where the trader opted to tax and claimed input tax on the purchase.

> "Schedule 4, paragraph 8 of the VAT Act 1994 deems a supply of goods to take place when a person ceases to be a taxable person and has goods on hand which form part of the business assets and on which input tax has been allowed."

**The £1,000 Exception:** Crucially, there is a de minimis safe harbour. There is no deemed supply if the total output tax due on all assets and stock on hand would not be more than **£1,000**.  If the calculated tax is £1,000 or less, the business keeps the assets without paying any exit charge to HMRC. If the tax is £1,001, the entire amount is payable.

## The Final VAT Return and MTD

Upon deregistration, the business must submit a final [VAT return accounting](https://www.accountingfirms.co.uk/blog/how-to-manage-stress-during-tax-season/) for all supplies made up to the effective date of cancellation, including any tax generated by the deemed supply of assets.

Under the [Making Tax Digital](https://www.accountingfirms.co.uk/blog/helping-accounting-clients-move-to-the-cloud/) (MTD) for VAT framework, businesses must use MTD-compatible software to submit this final return. The software submission finalises the digital link for the business's trading period. Once deregistered, the business must retain its VAT records (including the final MTD return data) for the standard statutory period of six years.

## Summary of VAT Deregistration Rules (2026/27)

| Element | Rule / Threshold | Statutory Authority / Case |
| --- | --- | --- |
| **Compulsory Deregistration** | Must notify HMRC within 30 days of ceasing taxable supplies. | VATA 1994, Sch 1, para 13(2) |
| **Voluntary Deregistration** | Permitted if future 12-month turnover will not exceed £88,000. | VATA 1994, Sch 1, para 13(1)  / HMRC Policy |
| **Effective Date** | Date of request or later; cannot be backdated retrospectively. | *TC 01535*  / VATA 1994, Sch 1, para 13(1) |
| **Assets on Hand** | Deemed supply of goods if input tax was originally claimed. | VATA 1994, Sch 4, para 8 |
| **Asset De Minimis Limit** | No deemed supply if the total output tax due is £1,000 or less. | VATA 1994, Sch 4, para 8 |
| **Final VAT Return** | Must account for all final trading supplies and deemed asset supplies via MTD. | VAT Regulations 1995, Reg 63 |

*Next steps for research: Review the [Capital Goods Scheme](https://www.accountingfirms.co.uk/blog/vat-the-deregistration-trap/) (CGS) under Part XV of the VAT Regulations 1995, as the deregistration of a business holding a CGS asset (such as commercial property over £250,000) may trigger a final adjustment requiring the repayment of input tax for the remaining intervals.*