Registration and deregistration in a nutshell
A business which makes taxable supplies in the UK must register for VAT if it exceeds the VAT registration threshold. A business may voluntarily register for VAT if its turnover is less than the threshold.
A business may cancel its VAT registration if its turnover drops below the deregistration threshold. It is required to deregister if it ceases trading.
A business which makes only exempt supplies cannot register for VAT.
Why are these rules important?
A ‘failure to notify’ penalty will be applied if the business fails to notify HMRC that it is required to be VAT registered or fails to notify HMRC that it is required to deregister within the required time scales.
What are the rules regarding registering for VAT in respect of UK taxable supplies?
Businesses are required to register for VAT once their UK taxable turnover has exceeded the VAT registration threshold (£85,000). The date that the registration threshold is exceeded is:
- If at the end of any month, the value of the UK taxable supplies made in the previous 12 months or less has exceeded the VAT registration threshold, or
- if at any time the business expects the value of UK taxable supplies made in the next 30 days to exceed the VAT registration threshold
Exemption from registration can be requested where the turnover exceeds the registration threshold if the taxable supplies are wholly or mainly zero-rated. Exemption is generally only allowed if the amount of input tax incurred exceeds any output tax due.
A business that is trading but has not yet made taxable supplies can voluntarily register as an intending trader.
What is the deadline for registering for VAT in respect of UK taxable supplies?
If the total value of UK taxable supplies in the last 12 months exceeded the VAT registration threshold then HMRC must be notified by the end of the month following that in which the threshold was exceeded. For example, if the VAT registration threshold was in exceeded in December 2020, HMRC must be notified by 31 January 2021. The effective date of registration will be 1 February 2021.
If the business expects that the total UK taxable supplies made in the next 30 days will exceed the limit, then HMRC must be notified within 30 days of the date of that expectation. For example, if the business first expects to exceed the threshold within 30 days on 20 January, it must notify HMRC by 18 February. The effective date of registration will be 20 January.
What are the rules for deregistering for VAT?
A business is required to cancel its VAT registration number where (this list is not exhaustive):
- the business ceases to either make or have an intention of making taxable supplies
- the business is sold
- the VAT group is disbanded, or the business joins a VAT group
Businesses can voluntarily cancel their VAT registration where (this list is not exhaustive):
- HMRC is satisfied that the taxable turnover in the next 12 months will not exceed the VAT deregistration limit (£83,000)
- Part of the business is closed and HMRC is satisfied that the taxable turnover for the remainder will not exceed the VAT registration cancellation threshold
How do you register for VAT or cancel a VAT registration?
A business, or its appointed agent, should use the online service to register for VAT wherever possible. HMRC will, however, still accept paper applications.
Businesses registered with the online service can use this service to request that their VAT registration number is cancelled. A paper form VAT 7 can also be submitted.
Are there any anti-avoidance rules?
Yes. A business may attempt to avoid VAT registering by artificially splitting its business activities in order to continue to trade one or more of their businesses under the VAT registration threshold. HMRC has the power to treat these businesses as a single entity and register it for VAT under the disaggregation rules.