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Europe general VAT

When Should You Cancel Your VAT Registration? Expert Advice

Usually, VAT registration is a step that marks a certain stage of business growth. An opposite process called VAT deregistration can mean a variety of different things for company owners. If you are wondering what the cases for cancelling a VAT registration are, read the insights from the 1stopVAT experts below.

When do businesses deregister for VAT?

VAT deregistration is a procedure of cancelling the VAT registration for companies that are no longer eligible for charging VAT from their customers. Most commonly, companies deregister VAT when their expected turnover shrink below the VAT deregistration threshold.

In other cases, businesses must deregister for VAT once they stop providing VAT taxable services or producing such goods. The same rule applies if a company has registered for VAT intending to do a VAT taxable business, but this intention no longer exists.

VAT cancellation also applies for cases that concern M&A (mergers and acquisitions). For example, companies deregister their VAT if they want to join a group registration, they are sold, or the legal entity is changed. In the latter scenarios, the owners of these companies can retain the old VAT number after the deregistration.

Same applies to a reverse process. A representative of a group registration should deregister for VAT as soon as the group is dismantled.

For some businesses, it might be beneficial to stay out of the VAT program. It happens whenever a company does not obtain VAT receipts and wants to charge less than the competition from its customers. However, VAT deregistration is rarely a solution for business oriented towards growth as it adds to an administrative burden of continually tracking the turnover for noticing when it crosses the registration threshold as well as withdrawing the opportunity to submit VAT returns.

Turnover limit for VAT deregistration

As mentioned previously, VAT deregistration often happens after the turnover of a company hits below the VAT deregistration threshold. Just like the VAT registration threshold, the limit for VAT cancellation varies across countries. For example, in the UK, VAT deregistration threshold is £83,000. This amount, which is £2,000 less than the registration threshold, allows companies with their turnover on the verge of this amount stay deregistered, and lowers the administrative costs of re-entering the VAT scheme often.

How to deregister for VAT?

To cancel your VAT registration, you should fill in an online VAT deregistration form or, if they do not facilitate an online process, enquire the tax authorities of the country where you are VAT registered.

You should stop charging VAT from your customers from the date you have asked to cancel your registration. This date or the date your business ceases to exist will be considered the effective date of deregistration.

Sometimes companies that have mistakenly assumed their need to deregister, submit the cancellation form to the tax authorities. In most countries, responsible institutions resume the VAT registration as soon as they notice that the business is not permitted to deregister for VAT. Such business is due to account for all the VAT they should have charged and paid in the period of false deregistration.

Please keep in mind that even after you deregister for VAT, you are obliged to keep an archive of your VAT records for a set amount of years (i.e. six years in the UK).

Deregistering from MOSS

Slightly different rules for VAT cancellation apply to digital goods and services providers enrolled in the EU’s MOSS system. The VAT MOSS registered companies should deregister at least 15 days before the end of the calendar quarter. Then, the EU member state that manages the company’s registration takes over the process. After the trader has left MOSS, it is prohibited to re-enter for two calendar quarters.