When you stop being self-employed

You must tell HM Revenue and Customs (HMRC) if you’ve stopped trading as a sole trader or you’re ending or leaving a business partnership.

You’ll also need to send a final tax return.

How to tell HMRC

Tell HMRC you’re stopping self-employment.

If you’ll earn £1,000 or less in this tax year

You do not need to be registered as self-employed if you earn £1,000 or less in a tax year as a sole trader.

But you can choose to stay registered to:

• prove you’re self-employed, for example to claim Tax-Free Childcare
• make voluntary Class 2 National Insurance payments

If you decide to stop being self-employed because you’ll earn £1,000 or less, tell HMRC you stopped on 5 April (the end of the tax year).

Tax returns

You must send a Self Assessment tax return before the deadline if you’re stopping trading as a sole trader or you’re leaving a business partnership.

When you send the return, you’ll need to:

• work out your trading income
• add up your allowable expenses – this may include some of the costs involved with closing down your business, for example phone, internet and postage costs of letting people know
• calculate your capital allowances, including any balancing charges if you’ve sold business equipment or machinery
• work out if you owe Capital Gains Tax on any assets you’ve sold or ‘disposed’ of
• calculate your final profit or loss

You can hire a professional (for example an accountant) if you need help with your tax return.

Tax relief

You may be able to reduce your final tax bill by claiming:

• Entrepreneurs’ Relief – this can reduce the amount of Capital Gains Tax you have to pay
• overlap relief – this can prevent you being taxed twice on your profits when you stop trading during a tax year
• terminal loss relief – this can offset a loss made in your last tax year against your profit in the 3 previous tax years

Find out more information about overlap relief and terminal loss relief.

There are other reliefs to reduce the amount of Capital Gains Tax that you may be able to claim.

VAT registration

You must cancel your VAT registration if you or your partnership are registered.

If you employ people

You need to close your PAYE scheme and send final payroll reports to HMRC if you stop employing staff.

If you’re insolvent

You’ll usually be personally liable for your business debts. Your creditors can take you to court or make you bankrupt if you do not pay.

You might be able to find an alternative, for example an Individual Voluntary Agreement.

Construction Industry Scheme (CIS)

You must call the CIS helpline as soon as possible if you’re registered and stop trading as a contractor or subcontractor.

 

(GOV.UK)