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 need to send final tax returns and tell employees that you’re closing your business.
How to tell HMRC
Tell HMRC you’re stopping self-employment. They’ll cancel your Class 2 National Insurance contributions.
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, eg 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 (eg an accountant) if you need help with your tax return.
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.
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 don’t pay.
You might be able to find an alternative, eg 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.