During February’s Facebook Live, I talked about how to close down a self-employed business in the UK.
Shutting down a self-employed business in the UK requires careful planning and adherence to legal and tax obligations. Whether you’re retiring, moving on to new ventures, or simply no longer wish to continue your business, following the right steps will ensure a smooth closure. Here’s a step-by-step guide to help you through the process.
1. Notify HMRC
The first and most important step is to inform HM Revenue & Customs (HMRC) that you are ceasing self-employment. You can do this by:
- Filling out the online form on the HMRC website via your Government Gateway account
- Calling HMRC and notifying them over the phone
- Writing a letter to HMRC with your details and closure request
You will need to provide HMRC with your National Insurance number and your Unique Tax Reference (UTR) number. Once you notify HMRC, they will update their records and stop expecting future tax returns from you.
2. Submit Your Final Self-Assessment Tax Return
Even if you close your business, you still need to file a final Self-Assessment tax return by the usual deadline (31st January following the end of the tax year). Make sure to:
- Declare all income up to the closure date
- Deduct any allowable expenses
- Account for any capital gains or losses
If you’ve made losses, you may be able to offset them against previous years’ profits to reduce your tax liability.
3. Pay Any Outstanding Taxes and National Insurance
Before fully closing down, ensure that all taxes are settled, including:
- Income tax due on final profits
- Class 2 and Class 4 National Insurance Contributions (NICs)
- VAT payments (if registered for VAT)
If you have outstanding debts to HMRC, you may be able to arrange a payment plan.
4. Deregister for VAT (If Applicable)
If your business was VAT-registered, you need to:
- Submit a final VAT return
- Pay any remaining VAT owed
- Apply for VAT deregistration through HMRC
Failure to do so could result in fines or additional charges.
5. Inform Your Clients, Suppliers, and Banks
Closing your business means officially wrapping up any financial or contractual obligations. Make sure to:
- Notify your clients and complete any outstanding work
- Inform suppliers and settle any unpaid invoices
- Close your business bank account or update it for personal use
6. Close your PAYE scheme if you are an Employer (if applicable)
If you have staff, you will need to close your PAYE scheme and send the final payroll reports to HMRC. Once you have submitted the necessary information to HMRC, you will also need to provide your employees with a P45 on their last payday, alongside their final payslip. Visit the HMRC website here to learn how to stop being an employer.
7. Cancel Business Licences, Permits, and Insurance
If your business required special licences or permits, you should inform the relevant authorities and cancel them. Also, remember to cancel any business insurance policies to avoid unnecessary charges.
8. Keep Records for At Least Five Years
Even after closing your business, you are legally required to keep financial records, including:
- Tax returns
- Business accounts
- Invoices and receipts
HMRC may request these records in case of future audits or inquiries.
If you are using cloud-based accounting software, like QuickBooks Online, once you cancel your subscription you may only get 12-months read-only access to the data. Before you cancel your subscription, make sure you have downloaded all the data so you have it to hand in case HMRC do an investigation.
9. Consider Closing Your Limited Company (If Applicable)
If you operated as a sole trader, these steps will suffice. However, if you were a director of a limited company, you may need to officially dissolve it by:
- Paying off all debts
- Filing a DS01 form with Companies House
- Informing HMRC about corporation tax and payroll obligations
Closing down a self-employed business in the UK is a structured process that requires notifying the right authorities, settling financial obligations, and keeping records. By following these steps, you can ensure a hassle-free closure and avoid future legal complications. If you’re unsure about any aspect, consulting an accountant or business advisor can provide further guidance. You can visit this page on the HMRC website to learn more about how to stop being self-employed.
If you have any questions about how to close down your self-employed business, please feel free to e-mail me.
If you have any questions about how to close down your self-employed business, please feel free to e-mail me.