Over the next 12 months, many businesses will contract as economic pressures grow.
Some contraction can come as a result of restructuring or liquidating assets, but any change in business size is likely to impact administrative obligations.
Shrinking businesses may look to deregister for VAT, but it is important that the business owners understand the consequences of doing so.
At what point can a business deregister for VAT?
Most business owners will be keenly aware that when their taxable turnover crosses £90,000, they need to register for VAT.
However, if the taxable turnover drops below £88,000, then it is possible to deregister for VAT.
The gap between thresholds ensures that businesses operating in that zone do not fall into an endless cycle of registering and deregistering for VAT.
If your business is not VAT registered and you cross the £90,000 threshold unexpectedly, you will have 30 days from the end of the month in which you went over the threshold to register for VAT.
There is no obligation to deregister for VAT, even if you fall below the threshold, so there is no deadline for deregistering.
Is deregistering for VAT worth it?
To know whether deregistering for VAT is worth it for your business, you need to take a realistic look at your prospective finances over the next 12 months.
The Autumn Budget might have left you feeling pessimistic about your financial forecast, but try not to let it completely cloud your judgement.
If you deregister for VAT when business is going through a slow year, you might find yourself needing to register again the following year.
This is going to give you more administrative challenges than you need and is best avoided if possible.
Similarly, if you do slip below the VAT threshold, you should not see that as your permanent fate.
The Office for Budget Responsibility (OBR) estimated that £350 million of revenue was lost in 2023 from businesses suppressing trade to avoid the VAT threshold.
We would never advise any business to willfully suppress taxable turnover just to avoid having to register for VAT.
If you are a business owner who is getting anxious about the prospect of managing VAT, we are here to help.
Likewise, if you want to know whether deregistering is truly worth it for your business, we can offer tailored support and guidance.
Keep in mind that even businesses below the £90,000 threshold can voluntarily apply for VAT, so it is sometimes worth being VAT registered if you believe that your taxable turnover may cross the threshold soon.
Do not let short-term economic forecasts interfere with your long-term projections.
Instead, seek professional support from your trusted accountants.
For expert VAT support that ensures you are ready for the future, speak to our team today!