Escaping VAT? Here’s What to Know in 2025 Before You De-register
Avoiding the need to pay VAT might seem like an attractive thought for many small business owners, but there are some important updates and factors to consider—especially with the new 2025 VAT legislation. At Diamond Accounts, we always aim to help our clients save money, so timing your VAT de-registration strategically is key.
When Can You De-register from VAT?
Under the 2025 UK tax legislation, you can voluntarily de-register for VAT if:
-
Your turnover has fallen below the £90,000 threshold and is expected to stay below this level for the next 12 months.
-
Your business has ceased trading with no intention of making taxable sales in the future.
-
You are no longer making taxable supplies.
-
You have joined a VAT group.
-
You were never liable to register in the first place (voluntary registration).
When Must You De-register from VAT?
It is compulsory to inform HMRC and cancel your VAT registration within 30 days if you are no longer eligible. Failing to notify HMRC may result in penalties under Section 69 of the VAT Act 1994.
You must de-register if:
-
You’ve ceased trading permanently.
-
You’ve sold your business.
-
Your business has joined or left a VAT group.
-
The legal status of your business has changed (e.g. sole trader to limited company).
Note: If a business is sold or restructured, the new owner can retain the previous VAT number—but this means inheriting all past VAT liabilities and potential errors for up to four years, so it’s often better to request a new VAT number.
Voluntary VAT De-registration
You may voluntarily de-register if your taxable turnover is below £90,000 (updated for 2025). When assessing your eligibility, ensure your tax-exclusive turnover remains under this threshold.
HMRC will only approve if:
-
You reduce prices in a way that VAT is not passed on to customers.
-
In retail, you adjust your gross prices downward.
-
If you maintain gross pricing, HMRC may ask for evidence that turnover will drop—such as a loss of a major contract or reduced trading hours.
Output Tax on Assets and Stock
On de-registration, you may need to pay output VAT on any business assets and stock, calculated at current market value, accounting for wear and tear.
You must account for VAT if the total market value of the items exceeds £5,000 (VAT due of £1,000+). Exemptions include:
-
Zero-rated or exempt items.
-
Donated or gifted items (with no input VAT claim).
-
Items from non-VAT registered suppliers.
Example: If your qualifying assets are worth £6,000, you must pay £1,200 in output VAT, not just on the excess over £5,000.
Key Considerations in 2025
-
VAT on unsold stock, equipment, or vehicles may be payable if their VAT value is above £1,000.
-
Land and property used in the business may be liable if VAT was reclaimed.
-
Capital Goods Scheme adjustments are triggered on your final VAT return and can result in significant payments.
-
Even after de-registration, input VAT and bad debt relief can still be claimed on purchases and debts incurred during your VAT registration period.
In Summary
The 2025 VAT legislation updates—including the new £90,000 threshold—mean that small businesses need to reassess their VAT position more carefully than ever. De-registering at the right time could save you a significant amount—but poor timing might result in an unexpected VAT bill.
At Diamond Accounts, we’re happy to help you decide the best time to de-register and walk you through the VAT implications step-by-step.
Contact us today to chat about your options. It’s never too early to start planning your next tax-saving move.