How to update your VAT settings when you de-register your business for VAT

This article explains how to update your VAT settings in FreeAgent when you de-register your business for VAT.

Before you begin

1. De-register for VAT with HMRC

You will need to cancel your VAT registration with HMRC before you update your VAT registration status in FreeAgent. You can find instructions for how to do this on HMRC’s website.

HMRC will notify you when you have successfully de-registered for VAT. Take note of the date of this notification, as you will need it when you update your VAT registration status in FreeAgent.

2. Review your VAT transactions

Before you de-register for VAT in your FreeAgent account, you’ll first need to check that you've entered all your transactions that include VAT. These might include bank transactions, invoices, out-of-pocket expenses and supplier bills.

Make sure you do this before updating your VAT settings and submitting your final VAT return in FreeAgent. There is no way of undoing VAT de-registration in FreeAgent once your final VAT return has been filed, but it is possible to create a new VAT registration period if you re-register for VAT at a later date.

If you decide to re-register for VAT with HMRC in the future and need to create a new VAT registration period in FreeAgent, please see this article.

Update your VAT settings in FreeAgent

1. Change your VAT registration status

Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration' from the 'Accounting, Tax & VAT' section.


In the ‘VAT registration status’ area, select the ‘Are you VAT Registered?’ drop-down menu and select ‘De-registered’ from the list.


2. Set the de-registration date

Next, scroll down to ‘Important dates on your VAT registration certificate’. In the ‘Effective Date of VAT De-registration’ field you should enter the last day of your final VAT return. You can find this date in your business tax account once HMRC have accepted your VAT de-registration and updated your Final VAT return period.

For example, if you have a letter with a VAT de-registration date of 1st July, your business tax account will show a VAT return with an end date of the 30th June. In this case, the last day of your final VAT return would be 30th June and this is the date you would enter in FreeAgent.

The VAT de-registration date that you enter cannot be earlier than your VAT registration date and cannot be within a period where a VAT return is locked in FreeAgent. If you’ve issued VAT invoices, the de-registration date can't be earlier than the date of the last VAT invoice that you issued, as HMRC doesn’t allow you to issue VAT invoices after de-registration.


If you add a VAT de-registration date in error, you may encounter a ‘VAT registration is locked and cannot be changed’ error message, which is generated when your accounts have become locked in FreeAgent. To remove the de-registration date, you’ll need to unlock the account and edit the VAT settings. Once you’ve made the relevant edits, save your changes and remember to reapply the lock.

What happens next?

Once you’ve added the VAT de-registration date, FreeAgent will automatically generate your final VAT return, calculated up to that date.

From 8th April 2021, you will need to use FreeAgent's Making Tax Digital (MTD) connection in order to file your VAT return from within FreeAgent. If your business is not signed up for MTD for VAT, you will need to file your VAT return through HMRC's online portal and mark the VAT return as filed in FreeAgent.

Once you’ve filed the VAT return, you won't be able to add VAT to any subsequent transactions, including bank transactions, invoices, supplier bills and out-of-pocket expenses.

If you were cash accounting for VAT, HMRC guidelines require the final VAT return to be prepared on the invoice basis. FreeAgent does this automatically for you.

If you send recurring invoices to your customers, FreeAgent will issue those invoices for the net amount (i.e. without VAT) once you’ve de-registered for VAT. For example, if you'd been charging a customer £1,000 a month plus standard-rated VAT at 20% (i.e. £1,200), FreeAgent will issue monthly invoices for £1,000 from the VAT de-registration date onwards. If you would like your customer to continue to pay £1,200, you would need to edit the relevant recurring invoice profile and adjust the net amount to £1,200.

You may need to create journal entries after updating your VAT settings in FreeAgent following VAT de-registration. Here are a few of the most common scenarios that would require you to post journal entries:

  • Paying back VAT on stock and assets you held when you de-registered
  • Reclaiming VAT on bills you expect to receive after the date of de-registration
  • Reclaiming VAT on bad debts after de-registration

If any of the above apply to you, please follow the steps outlined in this article.

Please remember: there is no way of undoing VAT de-registration in FreeAgent once the final VAT return has been filed. If you decide to re-register for VAT with HMRC in the future, please see this article.

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