All good things must come to an end, and that sometimes means ending your career as a small business owner, even if just for a little while. Whatever your reasons for ending your self-employment, you’ll need to inform HMRC to make it official. Here’s everything you need to know.
First things first, you must tell HMRC if you’ve stopped trading as a sole trader, or you’re ending or leaving a business partnership. It’s simple to do this online - just make sure you have your National Insurance and Unique Tax Reference (UTR) numbers to hand.
Filing a final Self Assessment tax return
As with any other time you’ve filed your Self Assessment, 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
If your business partnership is ending, the nominated partner should also send a final Partnership Tax Return by the deadline on 31st January.
Claiming tax relief
In some cases, you might be able to reduce your final tax bill. You could claim:
- 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 three previous tax years
It can be a little tricky to navigate complex accounting areas like these, so make sure to speak to an accountant to find out more.
De-registering for VAT
If you or your partnership are registered for VAT, you must also cancel your VAT registration. As with de-registering for self-employment, it’s straightforward to de-register for VAT online.
It usually takes about three weeks for HMRC to confirm your cancellation and provide the official cancellation date of your VAT registration. This will be the date when the reason for your cancellation took effect (i.e. the date when you stopped trading).
Tidying up any loose ends
Ending your self-employment can be a difficult time, and there can be lots of tricky tasks to undertake, from cancelling a co-working space subscription to binning your old business cards. Here are a few of the legal obligations that you might also need to meet during this time.
If you employ people
If you’re insolvent
Even if you stop being self-employed, you’ll usually be personally liable for your business debts. If you have outstanding debts, your creditors can take you to court or even make you bankrupt in some circumstances if you don’t pay. If you’re in this unfortunate situation, you might be able to find an alternative, such as an Individual Voluntary Arrangement.
If you’re registered with the Construction Industry Scheme (CIS)
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.