A UK VAT-registered business's turnover has fallen, and it now reasonably expects its taxable turnover over the next 12 months to remain below £88,000. Under HMRC's VAT deregistration rules, what can this business do, and on what basis?
- It can deregister only by proving its turnover was below £88,000 over the previous 12 months, since deregistration is assessed by looking backward
- It cannot deregister at all once VAT-registered, unless it stops trading completely
- It can apply to deregister, because £88,000 is the deregistration threshold, set below the £90,000 registration threshold, and the test looks forward to expected turnover over the next 12 months rather than backward
- It can apply to deregister only if its turnover has already stayed below £88,000 for two consecutive tax years
Why C? And why not the others?
Correct answer: C. It can apply to deregister, because £88,000 is the deregistration threshold, set below the £90,000 registration threshold, and the test looks forward to expected turnover over the next 12 months rather than backward
HMRC sets the VAT deregistration threshold at £88,000, deliberately £2,000 below the £90,000 registration threshold, and the test for deregistering is forward-looking: a business can apply if it reasonably expects its taxable turnover over the next 12 months to stay below that figure, supported by evidence for that forecast. The option requiring proof turnover was already below £88,000 over the previous 12 months gets the direction of the test backwards; HMRC is concerned with a credible forward-looking forecast, not a historical average, which is why deregistration is not automatically available simply because last year's figures happened to be low. The option claiming a business can never deregister unless it stops trading is wrong, since deregistration on the basis of falling expected turnover is a standard, routinely used route that does not require ceasing to trade. The option requiring two consecutive tax years below the threshold invents a multi-year waiting requirement that has no basis in HMRC's rules, which assess only the forward-looking 12-month expectation at the time of the application.
Source: GOV.UK: VAT registration thresholds — deregistration