“I am VAT-registered, but turnover is lower than expected. Can I become VAT-exempt, and how?”
The firm's answer
A change can be examined — one weak month is not enough
The ordinary route under VAT Law section 59(a) considers annual turnover below the applicable threshold for two consecutive years. After reviewing eligibility and records, the firm contacts VAT to arrange exempt registration. Do not independently change your treatment before classification and its effective date are settled.
What is checked before applying?
- Occupation: Some occupations require VAT registration even at low turnover under registration regulation 13. First establish that exemption is permitted for the activity.
- Each year's turnover: Compare transaction turnover with that tax year's threshold. It is turnover, not profit after costs; do not average years to offset an excess.
- Consecutive annual data: The two-year route relies on consecutive annual figures. Recent monthly decline or a forecast for an unfinished year does not itself establish compliance.
- Transition records: Gather turnover reports, VAT filings and evidence; review open transactions, stock, equipment and possible tax adjustments.
Section 59(a) states that the director shall register the business as exempt, on the director's initiative or the business's request. Approval is not promised for every application, but discretion is not unlimited where conditions are met. VAT checks conditions and exceptions and arranges registration.
VAT Law section 59 ↗What about the first trading year?
Section 59(b) separately permits the director, on the director's initiative, to register a first-year VAT-registered business as exempt where turnover is below the registration threshold. This requires individual review; it is not an automatic right after one year or an escape from occupation-based registration.
How does the firm handle it?
- Provide activity details and income figures for the relevant years.
- We assess suitability, compile records and submit a reasoned request with supporting documents to the relevant VAT office. Additional documents may be requested.
- Confirm classification and the effective date. Until then, continue VAT-registered obligations.
- Adjust software and bookkeeping, reviewing separately transactions and documents spanning the transition date.
What changes with exemption?
For exempt transactions, no VAT is charged or tax invoices issued, and input VAT cannot be deducted. Appropriate documents, books and annual VAT turnover declarations remain necessary. Exemption does not remove income-tax, National Insurance or other reporting duties.
Consider pricing, customers and costs before changing. Exemption is not necessarily economically suitable for every business.
Official sources
- VAT Law — sections 59(a) and 59(b), National Insurance website text
- State Comptroller — Tax Authority public service and section 59 classification changes
Amounts in older guides may not be current. Compare each year with its own applicable threshold.
General information reviewed 15 October 2026, not individual advice. Eligibility, documents and effective date require examination of business records and law.