What happens when I deregister for VAT?

Understanding VAT deregistration in plain English

Deregistering for VAT can feel like a simple administrative step: you tell the tax authority you’re no longer VAT-registered, you stop adding VAT to invoices, and you carry on with business as usual. In practice, it’s often a major change to how your business prices, records sales and purchases, and communicates with customers and suppliers. It can also trigger “one-off” VAT consequences at the point you leave the VAT system, especially if you have stock, assets, or partly recovered VAT on items you still hold.

This article explains what happens when you deregister for VAT, what changes immediately, what final checks you need to do, and which pitfalls commonly catch businesses out. Although the exact forms, deadlines, and thresholds vary by country, the underlying mechanics are broadly similar: VAT registration puts you “inside” a system that collects VAT on sales and allows recovery of VAT on purchases; deregistration moves you “outside” that system. The transition between those two positions is where most of the practical work—and risk—sits.

What VAT deregistration actually means

VAT is a consumption tax collected by businesses on behalf of the government. While you are VAT-registered, you normally charge VAT on your taxable sales (output VAT) and you can usually reclaim VAT you are charged by suppliers on business purchases (input VAT), subject to the rules. Your VAT returns then pay the difference (or claim a refund if input VAT exceeds output VAT).

When you deregister, you are essentially announcing that your business is no longer required (or no longer chooses) to operate inside that VAT collection and recovery system. From your effective deregistration date:

You stop charging VAT on most sales that would otherwise be taxable.

You usually stop reclaiming VAT on purchases, because you are no longer filing VAT returns.

You change how you present your prices to customers, how you issue invoices, and how you account for VAT-inclusive costs.

Because VAT is designed to be neutral for VAT-registered businesses (they recover VAT and pass it on), leaving the system can change your cost base and your pricing strategy. It can also change how attractive you are to different kinds of customers—particularly businesses that are VAT-registered and can reclaim VAT, versus consumers who cannot.

Common reasons businesses deregister

Most businesses deregister for one of a handful of reasons:

Turnover falls below the deregistration threshold

If your taxable turnover drops and you expect it to remain low, deregistration can become available or required. This can happen in seasonal industries, after a major contract ends, or when a business changes direction.

Business stops trading

If you close the business, sell it, or stop making taxable supplies, deregistration is often part of winding down. Even if you’re shutting down, you may still need to submit a final VAT return and settle any outstanding VAT.

Switching business model or customer base

Some businesses find VAT registration burdensome or not beneficial once they focus more on customers who cannot reclaim VAT (like consumers). Deregistration may allow simpler pricing or make the business appear cheaper, because you no longer add VAT on top of your prices.

Administrative simplicity

VAT compliance can be time-consuming, especially if you have complex supplies, partial exemption, international sales, or digital reporting requirements. Deregistration can reduce compliance workload, but it also removes the ability to reclaim VAT on costs, which can be significant.

Restructuring or transferring a business

In a reorganization, the VAT registration may move to a new entity, or the old entity may no longer make taxable supplies. Some transfers may qualify for special treatment (such as a transfer of a going concern), but in other cases deregistration is still required for the old entity.

How the deregistration date matters

The effective deregistration date is the dividing line between “VAT world” and “non-VAT world” for your business. Getting this date right—and aligning your invoicing and accounting to it—is critical.

From that date:

Sales you make are generally no longer subject to VAT (subject to specific rules and exceptions).

Invoices issued after that date generally should not show VAT, and you should not present yourself as VAT-registered.

You typically cannot reclaim VAT on purchases made after that date, because you’re no longer a taxable person for VAT purposes (again, subject to local rules).

Many practical issues revolve around timing: deposits received before the date, services performed across the date, credit notes issued after the date, and goods delivered around the date. The simplest approach is to build a clear process: identify the deregistration date, freeze templates, update invoicing systems, train staff, and do a short “cutover” review of outstanding quotes, deposits, and recurring invoices.

Immediate changes once you deregister

You stop charging VAT

The biggest visible change is that you stop adding VAT to your invoices (for supplies that would otherwise be standard-rated or reduced-rated). This can be beneficial if your customers are mainly individuals or non-VAT-registered organizations, because your prices may look lower.

However, if your customers are mostly VAT-registered businesses, they may be indifferent to VAT-inclusive prices because they reclaim VAT anyway. In that scenario, deregistration could actually make you less competitive if you keep your prices the same: your VAT-registered competitors charge VAT but the customer reclaims it, so the customer compares net prices. If you deregister and keep your gross price unchanged, your net price may effectively rise compared with a competitor’s net price.

You must stop using your VAT number

Once deregistered, you must stop quoting your VAT number on invoices, websites, stationery, email signatures, and contracts. If you continue to display a VAT number and charge VAT, you can create a serious compliance problem: you may be required to pay over VAT you charged even if you were not entitled to charge it, and you may confuse customers who expect to reclaim VAT.

You may need to adjust your pricing strategy

Deregistration often triggers a pricing decision. Do you drop your prices by the VAT amount to become more attractive to consumers? Or do you keep prices unchanged and enjoy a margin uplift, accepting the risk that some price-sensitive customers may leave?

There’s no universal answer. A service business with mostly consumer clients might choose to pass on some savings to win or retain business. A niche consultancy might keep prices unchanged if clients buy based on expertise rather than price. A retailer might adopt a hybrid approach, reducing headline prices on key items but keeping others steady.

Your accounting for purchases changes

While registered, you often record purchases net of VAT (with VAT as a recoverable input tax). Once deregistered, VAT becomes a real cost. That means:

Your expense accounts may increase because invoices are recorded gross.

Your profit margin can shrink if you don’t adjust pricing.

Your bookkeeping may be simpler (no input VAT claims), but management accounts must reflect the new reality that VAT is now part of your costs.

You might need to update contracts and terms

Some contracts specify pricing “plus VAT” or state that VAT will be charged where applicable. If you deregister, you can no longer add VAT, but you still need to be careful: if a contract price was agreed net of VAT, the intent may have been to pay a net amount plus VAT. When VAT no longer applies, you may end up receiving only the net amount unless the contract is updated.

Conversely, if you agreed a price inclusive of VAT, deregistration might increase your margin because you no longer pay VAT over to the tax authority. Review key contracts, especially those with long-term pricing arrangements, retainer fees, or regulated pricing clauses.

The final VAT return and what it typically includes

Most VAT systems require a final VAT return covering the period up to the deregistration date. This return often looks like a normal return, but with extra attention needed for “closing adjustments.” The final return is your last chance to correctly declare output VAT on sales up to the deregistration date, reclaim input VAT on eligible costs incurred while you were registered, and report any required VAT on assets or stock you still hold.

Common items in a final return include:

Output VAT on invoices issued (or tax points created) up to deregistration.

Input VAT on purchases up to deregistration that you are entitled to recover.

Adjustments for bad debts, credit notes, or corrections.

A “deemed supply” or similar charge on certain assets and stock on hand (explained below).

It’s helpful to treat the final return as a mini-audit project. Reconcile sales and purchase ledgers, confirm invoice dates and VAT treatment, and ensure your systems don’t accidentally keep charging VAT after deregistration.

What happens to VAT on stock and assets when you deregister

One of the most misunderstood aspects of deregistration is what happens to stock and assets on which you previously recovered VAT. Many VAT regimes include a rule designed to prevent a business from reclaiming VAT on purchases and then leaving the VAT system while still holding those items. The principle is that if you reclaimed input VAT on items that will now be used outside the VAT system (because you are deregistered), there may be a one-off VAT charge to “balance” things.

The concept of a “deemed supply”

In many systems, deregistration can be treated as if you sold certain business assets to yourself at their market value (or another valuation basis). This notional sale is sometimes called a “deemed supply.” The effect is that you may have to account for output VAT on the value of stock and certain assets you still hold at deregistration.

Not every item will be affected, and there may be de minimis rules or thresholds. For example, some regimes only require a charge if the VAT due exceeds a certain amount. Others distinguish between stock for resale, capital assets, and partly exempt items.

Stock on hand

If you hold stock for resale and you previously recovered VAT when you purchased it, the VAT authority may require you to account for VAT on that stock when you deregister. The value used might be the current market value, cost, or selling price depending on local rules. Practically, you may need to:

Do a stock count as close as possible to the deregistration date.

Identify which stock items had recoverable VAT.

Apply the correct valuation method.

Calculate any output VAT due and include it in the final return.

This can be a rude shock for businesses with large inventory. It can also affect the best timing for deregistration: deregistering immediately after a busy selling season (when stock is low) may reduce the charge, whereas deregistering when stock is high may increase it.

Business assets and equipment

Assets like computers, vehicles, machinery, furniture, and tools may also trigger a VAT charge on deregistration if input VAT was recovered. Again, the details vary, but the general idea is similar: the asset is deemed to be supplied at a value, and VAT is accounted for.

Two practical points matter here:

First, the asset’s value at deregistration may be lower than its purchase price due to depreciation, wear and tear, or market conditions. That can reduce the VAT due compared with what you originally reclaimed.

Second, there may be special rules for capital goods adjustments or “capital goods schemes” where VAT recovery is adjusted over several years for certain high-value assets. Deregistration can trigger a final adjustment rather than a simple deemed supply. If you’ve bought significant capital assets while registered, it’s worth reviewing how those assets are treated.

Property and long-life assets

Real estate and long-life assets can have particularly complex VAT rules. Depending on your jurisdiction, property transactions may involve options to tax, exemptions, and long adjustment periods. If you deregister while holding property on which you recovered VAT, you might need to make adjustments, repay some VAT, or consider whether you should stay registered longer to manage cash flow and compliance outcomes. Property is an area where professional advice is often justified because small mistakes can be expensive.

Invoices, deposits, and work that spans the deregistration date

Life rarely lines up neatly with tax dates. Many businesses have deposits, subscriptions, ongoing services, staged projects, or delivery schedules that cross the deregistration date. Here are the common scenarios and how to think about them.

Deposits and advance payments

If you received a deposit or advance payment while you were VAT-registered, VAT may be due at the time of receipt under the “tax point” rules that apply in many countries. If you later deregister before completing the work, the VAT treatment can become tricky. In some systems, VAT remains due because the tax point already occurred. In others, you may need to adjust depending on when the supply is treated as taking place.

Practically, you should:

Review deposits received in the weeks/months leading up to deregistration.

Confirm whether VAT was charged and declared.

Ensure final invoices correctly reflect what has already been invoiced and what should be invoiced without VAT after deregistration (if applicable).

Ongoing services and retainer arrangements

For subscriptions, maintenance contracts, retainers, or periodic services, VAT is often linked to billing periods or the time the service is performed. If your deregistration date sits mid-period, you may need to split the supply: the part delivered while registered could be subject to VAT; the part delivered after deregistration may not be. That may require pro-rating and issuing revised invoices or credit notes.

Goods delivered around the date

For goods, VAT is often triggered by dispatch, delivery, or invoice date depending on the rules. If you ship goods while registered but invoice after deregistration (or vice versa), you need to identify which rule controls. A robust approach is to tag transactions around the cutover date and review them manually rather than relying purely on automated settings in accounting software.

Credit notes and returns after deregistration

What if a customer returns goods after you deregister and you need to issue a credit note for a VAT-charged invoice? Many systems allow or require you to adjust VAT previously accounted for, but the mechanics can vary. You might need to issue a VAT credit note referencing the original invoice, and you might need to adjust the VAT on your final return if the timing allows, or on a post-deregistration adjustment process if not.

Make a list of likely returns, warranty claims, or post-sale adjustments and decide how you will handle them before you deregister. If your business has a high rate of returns, the timing of deregistration can matter.

What you can and can’t do after deregistering

You generally can’t reclaim VAT on new purchases

Once deregistered, VAT you pay to suppliers typically becomes part of your cost. That said, some jurisdictions allow limited “post-deregistration” claims for VAT on invoices received late for costs incurred while you were still registered, or for certain adjustments. The key is that the purchase relates to the period when you were a taxable person and you meet the documentation rules. If you’re waiting on a batch of supplier invoices for work done before deregistration, consider whether it’s better to delay deregistration until those invoices are received and claimed, provided you remain eligible to deregister later.

You must not charge VAT

This is non-negotiable. If you charge VAT when you are not registered, you can create liabilities. Customers may also complain if they cannot reclaim VAT because the invoice is invalid. Update your invoicing templates, point-of-sale systems, website checkout settings, and any marketplace listings that automatically apply VAT.

You can still issue invoices, just not VAT invoices

You can continue trading normally, but your invoices should not show VAT amounts, VAT rates, or your VAT number. Many businesses redesign invoices to remove VAT columns and to clarify that they are not VAT-registered, especially in business-to-business contexts.

You may need to update marketplace and platform settings

If you sell through e-commerce platforms, marketplaces, or payment providers, your VAT registration status may affect tax calculation, invoicing, and display of VAT-inclusive prices. Some platforms require you to enter VAT details, and some handle VAT differently depending on customer location. Deregistration means you need to revisit those settings quickly to avoid mischarging.

How deregistration affects your customers

Customers experience VAT deregistration differently depending on whether they are VAT-registered.

Consumers and non-registered customers

For consumers, VAT deregistration usually makes your prices simpler and potentially lower. If you previously advertised VAT-inclusive prices, you might choose to reduce prices to reflect the removal of VAT. Even if you keep prices unchanged, customers may not notice a difference, but you could improve margins.

VAT-registered business customers

For VAT-registered customers, VAT is usually a pass-through: they pay VAT to you and reclaim it. What they care about is the net cost. If you deregister and keep the same VAT-inclusive price you charged before, your net price increases from their point of view, potentially making you less competitive. On the other hand, if you reduce your prices to roughly the old net level, your VAT-registered customers may be indifferent, but you’ll earn the same net revenue as before and you may have less admin.

Communication helps. If your business customers rely on VAT invoices for their own records, tell them clearly when the change takes effect and ensure your invoices remain easy to reconcile.

How deregistration affects your suppliers

Suppliers will continue charging you VAT where applicable, but you won’t be reclaiming it. That can influence supplier choices, negotiating power, and decisions like whether to buy new equipment now or later. Some businesses choose to make large capital purchases before deregistration so they can reclaim VAT while still registered—provided those purchases are genuinely for business use and the rules permit recovery.

Be cautious with timing: if you buy assets before deregistration and reclaim VAT, you may later face a deemed supply charge or a capital goods adjustment at deregistration. In other words, reclaiming VAT before deregistration isn’t always a “free win”; it can shift VAT into your final return instead of eliminating it. The cash-flow impact might still be positive, but it needs to be planned.

Record-keeping after deregistration

Deregistering does not mean you can throw away your VAT records. Tax authorities typically require you to keep records for a number of years, and you may need them for audits, disputes, or to support adjustments and corrections.

Good post-deregistration record-keeping includes:

Saving VAT returns and supporting reports.

Keeping copies of VAT invoices and import documents that supported input tax claims.

Preserving sales ledgers, purchase ledgers, and VAT reconciliation workpapers.

Documenting the deregistration date and the basis for it (for example, evidence of turnover decline).

Keeping stock and asset valuations used for any deemed supply calculations.

Even if you switch accounting software or change systems after deregistration, export and archive the data so you can access it later.

Potential one-off costs and cash-flow surprises

Many businesses deregister expecting less admin and potentially better consumer pricing. What they don’t always anticipate are the one-off costs that can appear:

VAT due on stock and assets

As discussed, a deemed supply or adjustment can create a VAT bill on the final return. This bill can be material, especially for retailers, wholesalers, and manufacturers with significant inventory.

Loss of input VAT recovery going forward

For service businesses with relatively low VATable costs, this may be modest. For businesses with high input VAT (advertising, equipment, subcontractors, materials), it can be significant and may offset the benefit of not charging VAT.

Systems and process changes

Updating invoicing systems, point-of-sale settings, e-commerce tax rules, and reporting workflows can take time and may require external support. The cost is often small, but it is still a one-off change project.

Pricing pressure

If you must reduce prices to remain competitive with VAT-registered suppliers (especially in B2B markets), your margins may come under pressure. Sometimes businesses deregister hoping to cut prices, but then find that increased input VAT costs mean they cannot reduce prices as much as expected without harming profitability.

Common mistakes to avoid

Charging VAT after deregistration

This is the classic error. It often happens because an invoice template wasn’t updated, a staff member used an old quote, or an automated recurring invoice kept running. Prevent it by locking old templates, updating software settings, and putting a clear note in your internal procedures.

Failing to account for VAT on stock and assets

Some businesses forget this entirely until they receive a query or assessment. Plan for it early by performing an inventory and asset review before you submit the deregistration application.

Not reconciling transactions around the deregistration date

Those “edge” transactions—deposits, credit notes, staged payments—are where VAT mistakes hide. Build a list of all transactions within a buffer period (for example, a month either side of the deregistration date) and review them carefully.

Assuming deregistration automatically applies

In many places, deregistration isn’t automatic. You may need to apply, meet conditions, and receive confirmation. Until you are actually deregistered, you remain responsible for charging and accounting for VAT. Make sure you understand whether you must wait for confirmation and whether you can choose the effective date.

Not communicating with customers

Business customers in particular may expect VAT invoices, and they may question invoices that suddenly omit VAT. A simple email or note on your invoice can prevent confusion.

Should you deregister voluntarily or stay registered?

Deregistration can be a smart move, but it isn’t always the best outcome. To decide, it helps to compare two scenarios: staying VAT-registered versus deregistering, based on your customer mix and cost structure.

When deregistration often makes sense

Businesses that sell mainly to consumers and have relatively low VATable inputs may benefit because they can reduce VAT-related admin and potentially lower headline prices. Some small service providers, tutors, tradespeople, and local consumer-facing businesses fit this pattern.

When staying registered may be better

If your customers are mostly VAT-registered businesses, VAT registration often doesn’t harm demand, and the ability to reclaim input VAT can be valuable. If you have high VATable costs—equipment, materials, subcontractors—staying registered can protect margins.

A practical way to compare

List your average monthly sales and estimate how much VAT you currently charge. Then list your average monthly VATable costs and how much VAT you reclaim. If you deregister, the output VAT disappears (good for consumer pricing or margin), but input VAT becomes a cost (bad for margin). The net effect depends on your gross margin, pricing power, and customer sensitivity.

What happens if you need to register again later

Business conditions change. If turnover increases, you might have to register again. Re-registering can bring you back into the VAT system, with new responsibilities and sometimes new scheme choices. If you re-register, you may be able to reclaim VAT on certain stock and assets you hold at that time, subject to rules and documentation. However, you should avoid deregistering and re-registering repeatedly without a genuine business reason, as tax authorities may scrutinize patterns that look like manipulation of thresholds.

If you think your turnover might rise soon—perhaps because you are negotiating a large contract—consider whether deregistration now will create unnecessary disruption. Sometimes it’s better to stay registered and avoid constant administrative change.

Practical checklist for a smooth VAT deregistration

To make deregistration as painless as possible, run through a structured checklist.

Before you deregister

Confirm eligibility or requirement to deregister based on your turnover and expected activity.

Choose an effective date that fits your trading cycle if you have flexibility.

Review stock on hand and plan a stock count near the date.

Review fixed assets and identify those with VAT recovered.

Consider any capital goods adjustment rules that might apply.

Review deposits, subscriptions, and staged projects that span the date.

Chase missing supplier invoices for costs incurred while registered if possible.

Update contracts that refer to VAT, especially “plus VAT” clauses.

At the point of deregistration

Update invoicing templates and accounting software settings.

Remove VAT number from stationery, website, and email signatures.

Update e-commerce and marketplace tax settings.

Inform relevant customers (especially business customers) of the change and the effective date.

After deregistration

Submit the final VAT return and pay any VAT due.

Archive VAT records and supporting documents securely.

Monitor turnover in case re-registration becomes necessary.

Review pricing and margins after a few months to ensure the business remains profitable under the new cost structure.

How deregistration can affect profitability

It’s easy to assume deregistration automatically improves profit because you stop paying VAT over to the government. But VAT isn’t typically a cost for a VAT-registered business; it’s a pass-through. Your profit impact comes from how deregistration changes your pricing and how much VAT becomes embedded in your costs.

Consider a simple example. While registered, you sell a service for 1,000 plus VAT. You charge 1,000 net, collect VAT from the customer, and later pay that VAT to the authority (after offsetting input VAT). Your profit is linked to the 1,000 net less your net costs.

After deregistration, if you charge the customer 1,000 (now with no VAT added), your customer pays less overall than before, which might increase demand. But your business now bears the VAT on costs you can no longer reclaim. If your cost base is VAT-heavy, your profit could decrease unless you raise prices or reduce costs.

On the other hand, if you keep your price at the old VAT-inclusive amount (for example, you previously charged 1,200 including VAT and now still charge 1,200 without VAT), your margin can increase—assuming customers accept the price and your costs don’t rise too much. The right approach depends on market positioning, customer type, and competitive dynamics.

Special situations to be aware of

Partial exemption and mixed supplies

If your business makes both taxable and exempt supplies, VAT recovery can already be restricted. Deregistration changes the picture again because you may lose the ability to recover any VAT at all, but you may also stop charging VAT on taxable supplies. Businesses with mixed supplies should take extra care with the final return and any adjustments.

International sales and digital services

If you sell internationally, VAT rules can become complex, especially with services supplied across borders and goods sold to customers in other jurisdictions. Deregistration might simplify domestic VAT reporting but could interact with foreign VAT obligations, marketplace rules, or import VAT. If you import goods, VAT on imports may become a direct cost rather than recoverable input VAT.

Bad debt relief and late payments

If you were VAT-registered and have unpaid invoices on which you accounted for VAT, there may be relief available if the debt becomes bad. Deregistration can complicate timing and eligibility, but it doesn’t always remove the possibility of claiming relief. Keep a record of outstanding receivables and the VAT element at deregistration, and track what happens to those debts.

What happens to your business identity and customer perception

VAT registration status can influence perception. Some customers equate VAT registration with size or credibility, especially in B2B markets. Others don’t care. In some consumer markets, “not VAT-registered” can be a selling point if it implies lower prices. Decide how you want to present the change.

If you deregister, consider adding a simple line to invoices such as “Not VAT-registered” to prevent confusion. If you previously marketed to businesses, reassure customers that your service and professionalism remain the same; the tax status has simply changed.

When to get professional help

Many small businesses can handle VAT deregistration themselves, particularly if they have straightforward sales and low levels of stock and assets. But certain situations justify specialist input:

You hold significant inventory or high-value assets with VAT recovered.

You have property transactions or opted-to-tax arrangements.

You operate partial exemption or have complex VAT recovery methods.

You trade internationally, import goods, or sell digital services across borders.

You have complicated contracts, deposits, or long-term projects spanning the deregistration date.

A short consultation can help you avoid overpaying VAT, missing a required charge, or triggering penalties through accidental VAT invoicing after deregistration.

Final thoughts

Deregistering for VAT is more than ticking a box. It changes how you price, how you invoice, and how you experience VAT on costs. The main things that “happen” when you deregister are straightforward: you stop charging VAT, you stop reclaiming VAT, and you submit a final return. The complications sit in the edges: stock and assets you still hold, transactions that span the deregistration date, and the effect on your customer base.

If you treat deregistration like a planned cutover—choose the right timing, update systems, review inventory and assets, and carefully prepare the final return—you can avoid unpleasant surprises and make the transition smooth. Done well, VAT deregistration can reduce admin and align your tax status with your business reality. Done hastily, it can create errors, customer confusion, and unexpected VAT bills. The difference is preparation, clarity around the effective date, and a careful review of what you still own and what you still owe as you exit the VAT system.