The most important government organisation you must tell is HM Revenue and Customs (HMRC).
You must notify HMRC any time you stop trading as a sole trader or you end (or leave) a business partnership.
There will be other responsibilities and obligations as well, especially if you employ people, such as:
- Sending in your final tax returns.
- Letting any of your employees know that you will stop being their employer because you will close down your business.
Note: You still need to tell HMRC you stopped being self-employed even if you do not employ any staff.
Tell HMRC You Will Cease Trading
You can use an online form to tell HM Revenue and Customs you are stopping self-employment, selling or closing your business, or have never been self-employed.
The date you notify them must not be earlier than seven (7) days before the date you stopped self-employment. But, once HMRC get notified they will also cancel your Class 2 National Insurance contributions.
Sending Your Tax Returns
You need to file your Self Assessment tax return before the deadline if will stop trading as a sole trader. The same would also apply if you are leaving a business partnership.
There will be several workings for you to determine when you send your Self Assessment tax return, including:
- Adding up your allowable expenses for being self-employed. The total amount might include some of the costs related to closing down the business (e.g. Internet, phone, postage, letting people know).
- Calculating your trading income and your capital allowances (remember to include any balancing charges if you sold business equipment or machinery).
- Working out whether you owe any Capital Gains Tax on assets you sold (or ‘disposed’ of).
- Calculating the final profit or loss figures for your business.
Note: The nominated partner should file a Partnership Tax Return if a business partnership is ending (before the Self Assessment tax return deadlines). You may need professional help (e.g. an accountant or tax adviser).
Claiming Tax Relief
In some cases, you would be able to claim some reliefs to reduce your final tax bill, such as:
- Business Asset Disposal Relief (may reduce the amount of Capital Gains Tax you need to pay).
- Overlap relief (may prevent you being taxed twice on any profits when you stop trading during a tax year).
- Terminal loss relief (may offset a loss made in the last tax year of trading against profit made in the previous three tax years).
If You are VAT Registered
You must cancel VAT registration if you were operating as a sole trader or partnership and already registered for Value Added Tax.
If You have Employees
What if your business stops employing people? In this case, you must also close your PAYE scheme. So, once you stop employing staff you would need to send final payroll reports to HM Revenue and Customs (HMRC).
If the Company is Insolvent
As a rule, even though you stop being self employed you will still be ‘personally’ liable for any business debt that you have. Failing to pay means the creditors can take court action or enforce bankruptcy proceedings.
Note: There may be other options available for paying off your debts (such as Individual Voluntary Agreements).
Construction Industry Scheme (CIS)
What if you are self employed and registered as a CIS contractor or subcontractor? In this case, you must contact the CIS helpline without delay if you will no longer be in self-employment.