When should I stop being self-employed?
There is no mandatory reason for you to stop being self-employed. However, you should stop being self-employed whenever you wish to stop working for yourself. For example, if you’re retiring or returning to working full-time for somebody else.
You should take the steps outlined below whenever you stop working for yourself. This includes when you stop operating as a sole trader (eg as a freelance consultant), when you stop operating as a sole trader operating under a trading name (ie using a business name as opposed to your own name) and when you stop being a member of a partnership.
Inform HMRC
Regardless of why you wish to stop working for yourself, the main step involved is informing HM Revenue and Customs (HMRC).
You can either do this online or by phone, by calling 0300 200 3310.
If you are self-employed and work in construction you must call the Construction Industry Scheme (CIS) helpline as soon as possible. The CIS helpline number is 0300 200 3210.
Complete a final self-assessment tax return
Every self-employed individual must complete an annual self-assessment tax return. When you stop being self-employed you must complete a final annual self-assessment tax return which can be done online or in paper form. When completing your self-assessment tax return you must:
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work out your trading income (ie income from your self-employment)
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add your allowable expenses (eg some costs related to closing your business, such as postage costs) - you do not need to submit proof of your expenses but you should keep records in case HMRC asks for proof at a later date
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work out your capital allowances (including any balancing charges on business equipment you sold for which you previously claimed a capital allowance)
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determine if you owe capital gains tax (CGT) on any assets (eg equipment or land) you’ve sold
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work out your final profit or loss
Due to the potential complexity of tax self-assessment, it is recommended that you get professional tax advice (eg from a chartered accountant).
The completed self-assessment tax return must be submitted to HMRC before the relevant deadline. Paper self-assessment tax returns must be received by HMRC by midnight on 31 December of the tax year. Online self-assessment tax returns must be received by midnight on 31 January of the tax year.
Note that additional requirements apply to partnerships that are ending (eg to the nominated partner submitting a final partnership tax return). For more information, read Ending a partnership.
What happens if I don’t notify HMRC?
It is crucial to let HMRC know when you stop being self-employed. Not doing so can result in fines becoming payable. Further, if you fail to inform HMRC that you have stopped being self-employed, HMRC may continue to ask you to complete self-assessment tax returns and you may become subject to late filing penalties. For more information, see the Government’s guidance.
What happens after I’ve notified HMRC?
Once you have notified HMRC that you are stopping being self-employed you will be deregistered. This means that HMRC will not request that you submit a self-assessment tax return in the next year and will cancel your national insurance contribution.
However, even after you stop being self-employed, you should make sure to keep all relevant records for the required periods. You should also ensure that HMRC has your up-to-date contact address for the 12 months following the submission of your final self-assessment tax return. If you move within this 12-month period, you should provide HMRC with a forwarding address.
What other things should I consider?
If you’re self-employed and are closing your business, you should also consider:
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cancelling your VAT registration if you’re VAT registered - for more information on the process, see the Government’s guidance
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making any staff you employ redundant
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closing your Pay As You Earn (PAYE) scheme and sending a final payroll report, if you employ staff
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informing all relevant parties (eg suppliers, customers, creditors and debtors) that you’re closing your business
For more information, read Close your business.
What if I stop being self-employed because I’m insolvent?
As a self-employed individual, you are typically personally responsible for your business’ debts. This means that if your business cannot pay its debts you will be personally liable for them. Anyone to whom your business owes money (ie a creditor) can take action against you to recover the money (ie by applying to the courts to declare you bankrupt). Alternatively, you may be able to reach an agreement (eg an individual voluntary arrangement) with your creditors.
For more information, read Insolvency.
