How to stop Self Employment with HMRC
Ending self-employment marks a significant milestone that needs careful attention to detail and proper documentation.
Whether you’re planning to stop self employment for a new job opportunity or retiring from business altogether, the process involves multiple administrative tasks, from gathering essential paperwork to completing your final tax return.
Communicating the end to your self employment with HMRC stands paramount throughout this process.
Missing deadlines or failing to notify HMRC in the right way that you have stopped self employment could result in unnecessary complications and potential penalties.
Meeting all de-registration requirements for self assessment, VAT, CIS, and PAYE schemes proves equally important. Each HMRC scheme demands specific actions within strict timeframes.
From gathering essential paperwork to meeting crucial deadlines, there are several important steps you must follow to ensure a smooth transition.
Sometimes navigating HMRC’s requirements when you need to stop self employment can feel overwhelming.
Our guide to stopping self employment walks you through many of the essential steps involved when ending your self-employed status with HMRC.
We’ll cover everything from recognising the right time to stop trading through to completing your final tax return and handling additional HMRC de-registrations.
Complete your final Self Employed Tax Return
Completing your final self employed tax return is a crucial step to ensuring you meet all HMRC obligations while maximising potential tax benefits.
The same self assessment submission deadlines apply for your last tax return so you will need to wait until the current tax year ends before filing your final return to HMRC.
Submitting your final tax return will cover the final year of your self employed business and should include the date that your self employed business stopped trading.
Final tax return deadlines and requirements:
Filing deadlines vary based on your submission method. For paper returns, submit by 31 October following the tax year end.
Online tax return submissions must reach HMRC by 31 January. For the 2024/25 tax year as an example, these dates translate to 31 October 2025 and 31 January 2026, respectively.
Your final tax return must include:
- Trading income calculations.
- Date of business cessation.
- Outstanding payments or receipts.
- Post-cessation expenses.
Claiming allowable Self Employed Expenses
While closing your business, you can still claim various allowable expenses on your final tax return.
These self employed tax reliefs must directly relate either to normal business trading or closure and include:
- Office costs (stationery, phone bills).
- Travel expenses (fuel, parking, transport fares).
- Professional fees (accountant, tax advisor, legal services).
- Marketing and advertising costs.
- Training course fees related to your business.
- Post-cessation expenses, such as professional indemnity insurance, which might continue after trading stops.
Calculating Final Year of Trading Income and Expenses
Your final tax calculations must encompass all income and expenses from your last trading year.
Post-cessation income and expenses that might arise after stopping your business need to be taken into consideration.
For example if you receive payments after stopping trading you can report these as ‘Other taxable income’ on your self assessment tax return.
For expenses, include costs associated with closing your business, such as:
- Administrative expenses.
- Postage and telephone charges.
- Professional services fees.
Essentially, you can claim allowable expenses to offset against your tax bill, primarily focusing on costs directly related to business closure.
Final year of Trading Business Records
Gathering and organising your business records in a format that meets HMRC guidelines is a must.
HMRC mandates keeping business records for at least six years after ceasing self-employment.
For instance, if you stop trading during the 2024/25 tax year, maintain your records until 31 January 2031.
Essential records to maintain include:
- Bank statements and financial records.
- Sales invoices and receipts.
- Purchase receipts and expense documentation.
- Equipment and asset records.
- Business correspondence.
Contact HMRC to Deregister for Self Employment
Notifying HMRC about ending your self-employment status stands as a crucial step in the closure process.
Failing to inform HMRC properly might result in continued expectations for self-assessment returns and potential penalties.
Remember, HMRC will not automatically remove you from self-assessment if you become employed elsewhere or start claiming benefits which means deregistering is essential.
Online HMRC self employed deregistration process
The most straightforward method to cease self-employment involves using HMRC’s online services through your government gateway account.
Initially, sign in to your personal tax account and locate the self-employment section. Afterwards, select the option to stop self-employment and provide your cessation date.
Required information for online deregistration includes:
- Your Unique Taxpayer Reference (UTR).
- National Insurance number.
- Current contact details.
Upon submission, HMRC will process your request and cancel your self-assessment requirements for future tax years.
Primarily, this prevents HMRC from sending unnecessary tax returns moving forward and helps avoid potential late filing penalties.
After deregistration HMRC asks everyone to maintain their current address with HMRC to ensure you receive any important correspondence regarding your previous self-employment status.
HMRC phone deregistration steps
If deregistering for self employment online isn’t possible or if you would prefer speaking with HMRC directly, the self employed helpline offers an alternative.
Follow these steps:
- Call the HMRC self-employed helpline on 0300 200 3300. Opening hours: Monday to Friday, 8am to 6pm. Sometimes the best time to call: Before 10am for shorter wait times.
- Prepare your details beforehand so you can pass security and deregister smoothly:
- Personal information.
- Unique tax reference number (UTR) number.
- National Insurance number (NINO).
- Business closure date.
Managing other HMRC Scheme Deregistrations
In addition to self assessment some self employed businesses need to use other HMRC schemes like VAT, CIS and PAYE.
These schemes are separate to self assessment and require attention when ceasing self-employment.
A few of the key HMRC schemes are:
VAT deregistration process
HMRC requires deregistration if your business no longer meets VAT eligibility criteria.
Upon deciding to cease trading, you must cancel your VAT registration within 30 days of stopping business activities.
You can submit your VAT deregistration request through your HMRC business tax account online.
The cancellation process typically spans three weeks, with HMRC confirming your official cancellation date.
After VAT deregistration approval from HMRC:
- Submit your final VAT return within one month of the cancellation date.
- Account for stock and assets worth over £1,000.
- Maintain VAT records for six years.
Construction Industry Scheme de-registration
Construction industry workers must notify HMRC promptly about ending their CIS registration.
Contact the dedicated CIS helpline at 0300 200 3210, usually operating Monday through Friday between 8am and 6pm.
The CIS Centre at Newcastle processes cessation notifications and handles several key aspects including:
- Closing subcontractor-only schemes.
- Adjusting scheme types for combined employee-subcontractor registrations.
For contractors employing subcontractors you should complete the monthly CIS return for your final trading month and ensure payment of any outstanding CIS deductions from subcontractor payments.
HMRC PAYE scheme closure
Closing your PAYE scheme requires specific steps if you have employed staff. The process involves:
- Sending final payroll reports to HMRC.
- Marking your last submission as a final Filing Payment Summary (FPS).
- Including the scheme cessation date.
For the final submission, two crucial data items must be completed:
- The indicator confirming final submission.
- The precise date of scheme cessation.
You can call the HMRC employers’ helpline on 0300 200 3200 if you need support and you will be asked for either your PAYE reference number or accounts office reference number.
Capital Gains Tax Considerations
When ceasing self-employment, you might need to calculate capital gains tax (CGT) on business assets sold or transferred.
While calculating capital gains, include:
- Asset disposal proceeds.
- Original purchase costs.
- Improvement expenses.
- Selling costs.
You might qualify for additional tax relief through:
- Overlap relief to prevent double taxation.
- Terminal loss relief, offsetting final year losses against previous years’ profits.
- Business Asset Disposal Relief (BADR) for reduced Capital Gains Tax rates.
Remember to report any capital gains from residential property sales within 60 days.
Although this requires a separate return through the ‘Capital Gains Tax on UK Property‘ account, you must still include these details in your final self-assessment submission.
Outstanding Business Payments and Debts
Addressing outstanding financial obligations is a crucial part of stopping self employment and require immediate attention as they remain your personal responsibility.
Business debts can come in different forms for example:
- Unpaid invoices from customers.
- Outstanding supplier payments.
- HMRC tax liabilities like income tax, VAT and national insurance.
- Business loans.
HMRC can offer a time to pay arrangement to pay back tax debt over an agreed period of time.
When to Stop Being Self-Employed
Making the decision to cease self employment marks a significant turning point in your working life with there being several factors that could influence the right moment to make this transition.
Beyond financial aspects, personal circumstances might prompt the decision to stop running your own business.
The stability of traditional employment can be especially appealing particularly when facing challenges with fluctuating income or complex financial management.
Being self employed can bring with it a type of pressure and stress that isn’t necessarily found when you are employed.
Making a change away from running your own business is an understandable choice if the mental load does become too much.
Signs that it might be time to cease trading
Financial indicators often provide clear signals about business viability. Consider stopping your self-employment if:
- Your business consistently generates losses.
- Income falls below £1,000 in a tax year.
- You face mounting debts or financial stress.
- The costs of running the business outweigh profits.
When trying to decide the financial viability of your business involving your accountant or financial advisor would be a sensible approach because they may be able to provide some valuable insights.
Tip if you’re becoming employed under PAYE
When you start a new job under PAYE you will normally give your new employer a P45 form from your previous employer to make sure you have a correct tax code.
This won’t be possible if you have just closed your self employed business because a P45 isn’t produced through self assessment.
You should ask for a starter checklist (previously known as a P46) from your new employer which they can they can send to HMRC instead of a P45.
Planning your Exit Timeline from Self Employment
A successful exit from your business requires careful planning and strategic decision-making.
Start by developing a comprehensive timeline that aligns with your personal and financial goals.
Unless you are wanting to sell your business maintaining strict confidentiality throughout the closing down period is best practice to protect your business reputation.
Your exit timeline should account for several crucial elements. First, gather all essential documentation and review your financial position.
Next, plan communications with key stakeholders, including customers, suppliers, and employees.
For businesses with employees, the timeline must include provisions for:
- Making staff redundant.
- Closing PAYE schemes.
- Sending final payroll reports to HMRC.
Accounting Period for your Final Tax Year of Trading
With a tax year starting on the 6 April and ending on the following 5 April you should consider the timing of your exit in relation to the tax year.
The duration of your financial reporting period will stretch from the conclusion of your previous accounting cycle to the day you stop officially trading.
For example, if your accounting period normally concludes on 31st March annually and you opt to cease self-employment on 31st December 2025, basis period for your final tax year of trading will span from 1st April 2025 to 31st December 2025.
