If you use the VAT flat-rate scheme (FRS), you need to work out whether you spend at least 2% of your gross turnover, and at least £250 per quarter, on ‘relevant goods’. If you don’t, you must use a flat-rate percentage of 16.5% for that quarter, which removes all the financial benefit from using the FRS.
The definition of relevant goods doesn’t include goods you acquire to give away as promotional items or gifts, or goods you buy to resell which are not part of your main business activity.
If you are unlikely to meet the 2% threshold, you may want to stop using the FRS and revert to normal VAT accounting. You can opt out of the FRS from the beginning of your VAT quarter with retrospective effect. For example, if your VAT quarter runs from 1 April to 30 June, you can opt out of the FRS from 1 April 2017 if you tell HMRC before you submit your VAT return for that quarter; this is due to be submitted by 7 July.
If you want to cease to be VAT registered, but you will carry on trading, you must tell HMRC in advance of the date you want to cancel your registration. This can’t be backdated. Once deregistered, you won’t be able to reclaim VAT on purchases and you must not charge VAT on your sales.