VAT deregistration threshold: The £88,000 rule explained

The VAT deregistration threshold is the turnover level below which a UK business can voluntarily cancel its VAT registration with HMRC. As of 2024/25, that figure is £88,000 in VAT-exclusive taxable turnover over a rolling 12-month period.

If your revenue has dropped below this threshold, you may be able to cancel your registration, but HMRC has conditions you'll need to meet and obligations to fulfil before your registration is cancelled.

What does VAT deregistration mean?

VAT deregistration is the process of cancelling your VAT registration with HMRC so you're no longer required to charge VAT on your sales or submit VAT returns. Once you deregister, you stop adding VAT to your invoices, but you also lose the ability to reclaim VAT on your business purchases.

For many small businesses, deregistration simplifies day-to-day operations. You no longer need to keep detailed VAT records, file quarterly returns, or manage the timing of collecting VAT from customers and paying it to HMRC. That simplicity comes at the cost of input VAT recovery, though, so the trade-off depends on how much VAT you reclaim relative to the admin burden.

Deregistration is different from VAT exemption. Exempt supplies fall outside the scope of VAT regardless of your turnover. Deregistration is about your business's overall revenue falling below the threshold, not about the type of goods or services you sell.

How does the VAT deregistration threshold work?

The current VAT deregistration threshold is £88,000 of VAT-exclusive taxable turnover over a rolling 12-month period. That's £2,000 lower than the £90,000 compulsory registration threshold, creating a buffer zone that prevents businesses from repeatedly registering and deregistering as turnover fluctuates.

In practice, you could earn up to £89,999 without being required to register, but you'd need to fall below £88,000 before you could apply to deregister. If your turnover sits between those two figures, you stay registered.

How to calculate your turnover for deregistration

HMRC assesses your eligibility on a rolling 12-month basis, not by tax year or financial year.

You need to include all taxable supplies in your calculation. That covers standard-rated, reduced-rated, and zero-rated sales. Exclude VAT-exempt income.

The figure must be VAT-exclusive. If you're currently charging 20% VAT on your sales, strip that out before comparing against the threshold. A gross turnover of £105,000 might only represent £87,500 in VAT-exclusive terms, which would put you below the deregistration threshold.

When can you deregister for VAT?

Deregistration can be voluntary or compulsory, depending on your circumstances.

Voluntary deregistration

You can apply to deregister voluntarily if your VAT-exclusive taxable turnover for the past 12 months has fallen below £88,000. You'll also need to satisfy HMRC that your turnover will stay below £88,000 for the next 12 months.

HMRC looks for evidence that the drop in revenue is sustained, not temporary. If your turnover dipped because of a quiet season but you expect it to recover, your application could be rejected. You'll need to explain why you believe revenue will remain below the threshold going forward.

Compulsory deregistration

If your business closes down or stops making taxable supplies altogether, you're required to notify HMRC and cancel your registration within 30 days. You're also required to deregister if you change your legal structure, such as converting from a sole trader to a limited company. The exception is when you arrange to transfer the VAT number to the new entity.

Joining a VAT group also triggers compulsory deregistration for the individual entity, as does selling the business outright.

Why do businesses deregister for VAT?

You might consider deregistering for three main reasons: reduced admin, lower consumer-facing prices, and more predictable cash flow.

Administrative simplification

You spend time filing quarterly VAT returns, keeping detailed records of input and output VAT, and managing payment timing. If you're operating well below the threshold, that ongoing admin may not justify the benefit of staying registered.

Price competitiveness

This matters most if you sell to consumers who can't reclaim VAT. If your customers are individuals rather than other VAT-registered businesses, removing the 20% VAT element from your prices can make your products or services noticeably more attractive. A graphic designer charging £1,200 inclusive of VAT could drop to £1,000 after deregistering and keep the same margin.

If you sell B2B, the reasoning is different. Your business customers reclaim the VAT you charge them, so it doesn't affect their real cost. Deregistering mainly saves you admin time in that scenario but doesn't give you a pricing advantage.

Cash flow predictability

You no longer have to set aside a portion of every payment to cover your next VAT bill, which removes a recurring expense management challenge for small businesses.

What to consider before applying for VAT deregistration

Deregistration comes with costs and obligations.

Your final VAT return

You'll need to submit a final VAT return covering the period up to your deregistration date. This follows the same rules as any other return. You'll account for all output VAT charged and input VAT reclaimed during that final period.

If you've already started a VAT quarter, you'll need to file a return for that partial period. HMRC will set your official cancellation date, which might not align exactly with the date you applied.

Deemed supply on assets you still hold

If you claimed back VAT on assets, stock, or equipment you still hold at deregistration, HMRC may require you to repay the VAT based on their current market value. This is called a "deemed supply," and it treats you as though you sold those items to yourself on the day of deregistration.

This only applies when the total VAT owed on remaining assets exceeds £1,000. If your remaining stock and equipment would attract less than £1,000 in VAT at current market value, you don't owe anything. But if you've recently invested in equipment or hold significant inventory, the deemed supply charge will appear on your final return.

The retailer pricing risk

If you sell directly to consumers and plan to keep your gross prices the same after deregistering, you could end up back above the registration threshold.

Suppose you're currently charging £95,000 inclusive of VAT. Your VAT-exclusive turnover is roughly £79,167, which is below the deregistration threshold. But if you deregister and keep charging £95,000 without the VAT element, your entire £95,000 is now taxable turnover. That's above the £90,000 registration threshold, and you'd be required to re-register straight away.

HMRC will reject your deregistration application if they believe this will happen. You'd need to lower your prices by the VAT element or demonstrate that your sales volume will continue declining.

Keeping your records

Even after you deregister, you're required to keep your VAT records for at least 6 years. That includes invoices, receipts, and VAT returns. If HMRC reviews your past returns, you'll need these records on hand.

How to deregister for VAT step by step

Requirements and rules may change over time, but deregistering takes roughly five steps to complete:

1. Check your eligibility: Review your rolling 12-month taxable turnover on a VAT-exclusive basis. Make sure you're including standard-rated, reduced-rated, and zero-rated supplies while excluding exempt income. Your accounting software can help you pull accurate figures quickly
2. Apply through your HMRC online account: Log into your Government Gateway account and submit your deregistration request online
3. Choose your deregistration date: You can request a specific date or let HMRC assign one. The earliest date they'll approve is the day they receive your request. HMRC doesn't allow retrospective deregistration for reduced turnover, so your cancellation date can't be set earlier than the date you apply
4. Submit your final VAT return: File your last return covering everything up to your cancellation date. Include any deemed supply VAT if the total on remaining assets exceeds £1,000
5. Update your invoices and pricing: Once your deregistration takes effect, stop charging VAT on new sales. Update your invoice templates, remove your VAT number from paperwork, and adjust your prices if needed to avoid the retailer pricing risk

How long does the process take?

HMRC states that you should allow up to 40 working days for a response to your deregistration request, though straightforward online applications may be processed faster. You'll receive written confirmation of your cancellation date. Until that confirmation arrives, continue charging VAT and filing returns as normal.

Keep your purchase records in order with Ramp

Whether you’re preparing a final VAT return or holding onto documentation for the six years HMRC requires after deregistration, the underlying need is the same. Every purchase needs a receipt or invoice, proper coding, and a clear trail back to the original transaction.

That’s easier to pull together when documentation hasn’t been piling up all year. Ramp is a spend management platform for UK businesses that handles this from the point of purchase.

• Employees get prompted for receipts when they spend
• Supplier invoices flow into an inbox where they’re coded, routed for approval, and logged with a full audit trail
• VAT coding may be suggested along the way for your team to review, and everything syncs to Xero or QuickBooks Online

When you need to pull figures for a final period or hand records to an accountant, they’re already in one place. Ramp makes managing your purchase records that much easier.

Try Ramp's expense management software.