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Fool-proof guide to closing a self-employed business

  • 4 min read
  • 20 Nov 2023
Fool-proof guide to closing a self-employed business - TaxScouts

Closing a self-employed business? You may think it’s as easy as shutting down your PC and never logging back in, but actually, there’s a bit more to it than that. Because, well…tax.

If you want to know all about the tax implications of closing your self-employed business, read below!

What’s the first step of closing a self-employed business?

Well technically the first step is actually deciding to close your self-employed business, but anyway.👇

First things first, you need to let HMRC know what you’re doing as soon as you’ve come to the decision. You can do this online by filling out this form. Or you can call HMRC via telephone to tell them.

Once you let HMRC know, they’ll de-register you from self-employment by deactivating your UTR number so you won’t be expected to complete a tax return the following year. If you change your mind in the future, you’ll have to get HMRC to reinstate your UTR number.

If you’re registered for VAT, you should also ask HMRC to cancel this registration for you, too.

Then what comes next?

Now you’ve informed HMRC, they’ll know not to expect a tax return the following year, but that doesn’t mean you’ve escaped filing a tax return for the current tax year. 😅 You’ll still have to report your earnings for the year you closed your business.

For example:

If you stop trading on the 13th February 2024, you’ll still have to submit a Self Assessment for the 2023/24 tax year. But then you won’t have to file a tax return for the tax year 2024/25 (unless you have another reason to do one).

⚠️ Bear in mind, your final tax return will still need to be submitted before the deadline or you may face a late fee. ⚠️

What should I include in my final tax return?

When sending your final tax return, you should ask yourself all of the following:

Can I claim any allowable expenses?

If you spend any money closing down your business, you may be able to claim a tax relief for these costs to reduce your tax bill.

Here are a few examples of what can be classed as an allowable expense when closing a self-employed business:

  • Any costs from administration, postage, telephone or internet charges to inform relevant people, i.e HMRC, suppliers, and customers
  • The cost of professional services from solicitors to accountants

Do I owe capital gains tax?

Capital gains tax (CGT) is the tax you pay when you sell an asset for profit. So, if you’ve sold any business equipment or machinery and made a gain (this is the difference between what you paid for your asset and what you sold it for), you’ll have to pay capital gains tax.

However, you may be able to claim the business asset disposal relief on your final tax bill. This means you’ll pay a flat rate of 10% capital gains tax when selling or getting rid of any valuable items that you’ve used for your business.

Find out more about this here.

What about my employee(s)?

If you’ve employed anyone in your business, they’ll probably (definitely) appreciate you letting them know as soon as possible that they’ll no longer be working with you soon. 

(So that’s step one. 😅)

You’ll then need to close your PAYE scheme. You can do this by submitting a final payroll return with HMRC. You can fill in either of these forms:

🚨 Don’t forget to pay any outstanding wages to your employee(s), deducting any due tax and National Insurance. You have to send these tax payments to HMRC within 17 days (14 if you pay by cheque). 🚨

If you have a business partner, they’ll need to file a final partnership tax return.

Closing a self-employed business under the CIS 

If you want to stop trading as a contractor or subcontractor and you’re registered with the construction industry scheme, call the CIS helpline as soon as possible and let them know you no longer want to carry out work under the scheme.

How do I close a limited company?

Closing a limited company is quite different to closing a self-employed business. How this is done also depends on whether the company can pay its bills or not. 

Find out more about this here.

I need help with my final tax return!

If you need a hand sorting your final tax return to officially close your self-employed business, one of our accredited accountants will sort your tax return and send it to HMRC on your behalf. 

That way, you can focus on giving your beloved self-employed business the proper send-off it deserves.

Find out more about our services here

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