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When to Deregister for VAT: Planning Opportunities Ahead of 2026 Threshold Changes

In the midst of rising costs and tighter margins, many small businesses are rethinking whether being VAT registered is still worth it — especially those hovering near the registration threshold. With the VAT registration threshold frozen at £90,000 and a more digitised, regulated system on the horizon, voluntary deregistration is becoming an increasingly strategic move for some businesses.

But deregistering isn’t just a quick fix — it’s a tax decision with long-term implications. If done too early or without planning, it can create cash flow issues, lost input VAT claims, and unexpected HMRC liabilities. If done at the right time, however, it can improve margins, reduce admin, and simplify your business life.

In this post, we explore when it makes sense to deregister for VAT in 2025/26, what the rules are, and how to decide if it’s right for you before further changes arrive in 2026.

Where things stand in November 2025

The VAT registration threshold has been frozen at £90,000 since 1 April 2024, and as of the current guidance, will remain frozen into 2026. The deregistration threshold sits at £88,000.

This means:

  • You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month rolling period.
  • You can voluntarily deregister if your turnover falls below £88,000 and you expect it to stay there.

But here’s the issue: thresholds frozen for years, inflation rising, and many businesses finding themselves dragged into VAT due to nominal growth, not profit increases.

Why consider deregistering for VAT?

For some businesses, being VAT-registered is a badge of professionalism. For others — especially those selling to the public or non-VAT-registered clients — it can make prices seem higher and margins tighter.

Deregistering may benefit you if:

  • Your customers aren’t VAT-registered, and can’t reclaim the VAT you charge
  • You’re regularly just over the threshold and want to simplify admin
  • Your business has downsized or changed direction (e.g. a product-based business now offering low-turnover consulting)
  • You’re operating in a VAT-exempt sector, and registration creates limited benefit

Deregistration means you no longer charge VAT, submit VAT returns, or track input VAT — freeing up time and reducing quarterly compliance costs.

How does VAT deregistration work?

You can apply to deregister voluntarily if your taxable turnover over the next 12 months is expected to be below £88,000. You’ll need to apply through HMRC (either online or in writing), and they’ll confirm the deregistration date — often the date of request.

Once deregistered, you must:

  • Stop charging VAT from the effective date
  • Submit a final VAT return, including any outstanding output tax or adjustments
  • Account for VAT on any business assets (such as stock or equipment) if the total VAT due is more than £1,000
  • Keep VAT records for at least 6 years (even after deregistration)

If you’re switching to a non-VAT-registered model, you’ll also need to adjust your pricing, software settings, and bookkeeping processes.

What about Making Tax Digital for VAT?

Making Tax Digital (MTD) for VAT already applies to all VAT-registered businesses, regardless of turnover. That means even if you voluntarily registered below the threshold, you’re still required to:

  • Keep digital records
  • Use MTD-compatible software
  • File VAT returns quarterly (or annually) through the software

If you’re a small service business with few VATable expenses — and non-VAT-registered clients — the cost of staying in VAT (just to comply with MTD) may outweigh the benefit.

By deregistering, you can remove the obligation to follow MTD for VAT — at least until future digital filing rules for Income Tax catch up.

When is the best time to deregister?

If you’re considering deregistration, timing matters.

Here’s what to think about:

✅ Best time:

  • After a quiet quarter or downturn where turnover clearly falls below £88,000
  • When you’ve recently made a large asset purchase and already claimed the VAT (before you deregister)
  • Ahead of a business model change (e.g. switching from high-turnover to consultancy)
  • Before your next VAT quarter begins, to avoid one more filing cycle

❌ Worst time:

  • Just before a large sale where the customer expects to reclaim VAT
  • Immediately after buying high-value stock or equipment you haven’t yet claimed for
  • When your turnover fluctuates, and might jump back over £90,000
  • Without planning for VAT on assets retained, which may trigger a payable amount

Merranti can help model the best date to exit VAT based on your rolling 12-month income and input VAT position.

What happens to VAT on business assets?

One common surprise: when you deregister, you may need to repay VAT on certain business assets and stock still on hand — but only if the total VAT due exceeds £1,000.

For example:

  • Stock or inventory purchased with reclaimed VAT
  • Equipment, tools, or vehicles still used in the business
  • Prepaid services or leasehold improvements

If the VAT value of those items is significant, it may be better to delay deregistration or phase out those assets first.

What if I want to re-register later?

You can re-register for VAT at any time — voluntarily or if you go over the threshold again. However:

  • You’ll need a new registration and VAT number (in some cases)
  • You won’t be able to back-date claims on purchases made while unregistered
  • HMRC may review your reasons for frequent entry/exit if it looks artificial

If you plan to deregister, stay out for a while, then resume VAT trading later, talk to us first — it may be better to stay in or restructure instead.

Final thoughts

VAT deregistration can offer a cleaner, simpler financial life — especially for smaller service businesses or those selling directly to consumers. It can remove a layer of admin, eliminate digital filing requirements, and improve pricing flexibility in competitive markets.

But deregistering without planning can trigger tax liabilities, input VAT loss, or cash flow problems — and once you’re out, it’s harder to claim for old expenses.

At Merranti Accounting, we guide clients through the deregistration process, model the VAT on retained assets, and help you decide the most cost-effective time to switch — or whether to stay registered and optimise instead.

Thinking about deregistering from VAT?
Get in touch with Merranti for a Deregistration Review — we’ll help you decide if it’s the right time, or the wrong move.

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