You must tell HM Revenue & 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
When you send the return, you’ll need to:
- work out your trading income
- add up your allowable expenses
- 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
- calculate your final profit or loss
You may be able to reduce your final tax bill by claiming specific tax reliefs:
- Entrepreneurs’ Relief - you may be able to reduce the amount of Capital Gains Tax you have to pay by claiming Entrepreneurs’ Relief
- overlap relief - this can prevent you being taxed twice on your profits when you stop trading during a tax year
- terminal loss relief - if you’ve made a loss in your last tax year, you may be able to offset it against your profit in the 3 most recent tax years
There are other reliefs to reduce the amount of Capital Gains Tax that you may be able to claim - HMRC has more information.
You can get more information about overlap relief and terminal loss relief in HMRC’s factsheet ‘Taxable profits’.
You must cancel your VAT registration if you or your partnership are registered.
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.
If you employ people
- follow the rules on redundancy
- pay any outstanding PAYE tax and National Insurance to HMRC and get them to close your business’ payroll scheme
- call HMRC’s Employer Helpline and tell them you won’t be employing staff
HMRC Employer Helpline
Telephone: 0300 200 3200
Monday to Friday, 8am to 8pm
Saturday, 8am to 4pm
Find out about call charges