If my business shrinks, should I deregister for VAT?

While we would like to be in a position where every business is on the fast track to growth, there are times when things need to be pared down somewhat.

Whether a decline in revenue or a restructuring has resulted in your business contracting, you might be looking to relieve yourself of some of the administrative burdens that come with larger operations.

VAT might be on the chopping block, but you should understand the consequences of deregistering before you commit.

When can I deregister for VAT?

The current VAT threshold for businesses operating in the UK is £90,000.

Oddly enough, the threshold at which you can deregister for VAT is £88,000 of taxable turnover.

This discrepancy likely exists to prevent companies from falling in and out of the VAT threshold as business fluctuates organically.

If your business is not VAT registered and you cross the £90,000 threshold unexpectedly, you will have 30 days from the end of the month in which you went over the threshold to register for VAT.

Given that it is entirely optional, there is no strict deadline for deregistering for VAT and a business can continue to be registered for VAT even if it falls below the £88,000 threshold.

Is it a good idea to deregister for VAT?

Whether it is worth deregistering for VAT will ultimately hinge upon how you expect your business to perform in the next 12 months.

There is a wave of pessimism going around at the moment in the wake of the Autumn Budget, but you should avoid letting this sway your judgment too much.

If you deregister during a temporary period of economic downturn, only to find your prospects suddenly get better, you will have to register for VAT again.

However, if you are confident that you will not be generating £88,000 of taxable turnover in the next 12 months, then feel free to deregister from VAT.

This will see a drop in the administrative tasks that come with VAT and will relieve you of some of your record-keeping obligations.

Yet being below the VAT threshold can often be something of a poisoned chalice for businesses that take too much comfort in the lack of administration involved.

It is worth noting that the Office for Budget Responsibility (OBR) estimated £350 million of revenue was lost in 2023 from businesses suppressing trade to avoid the VAT threshold.

Given the challenges currently facing businesses in the economy, it would be unwise for businesses to deliberately cap revenue just to avoid VAT.

If, as a business owner, you are currently staring down the barrel of imminent VAT registration, we can help you prepare.

Similarly, if the time has come to leave VAT in the past, we can help you manage that as well.

Ultimately, we want to help your business manage the required obligations without getting caught out by compliance risks or further trouble down the line.

Even businesses below the £90,000 threshold can voluntarily apply for VAT, so it is best to stay registered for as long as your revenue is anywhere close to the threshold to avoid having to go through the process again.

For help and support staying compliant with your VAT obligations, speak to our team today!