What to do when you stop being self-employed

When you stop trading as a UK sole trader, tell HMRC, complete the final tax return you’re required to send and check whether other registrations need closing. Keep your business records and check any payments on account that are still due. Taking a PAYE job doesn’t automatically close your self-employment record. HMRC: stop being self-employed.

You might be taking a job, changing direction or closing a business that no longer fits. These steps help stop unfinished tax matters following you around. Closing a limited company is a separate process.

Tell HMRC and finish the reporting

Tell HMRC that you’ve stopped trading, and complete the final tax return the business needs. Starting a PAYE job doesn’t automatically close your self-employment record.

Work out your final income, allowable costs and any adjustments for business assets or losses. If you sell equipment or transfer assets, the tax on that may need a separate calculation. HMRC: stop being self-employed.

You may still need to do Self Assessment for another reason. Check where you stand, rather than assuming every future return has been cancelled.

Check registrations one by one

If they apply to you, deal with cancelling your VAT registration and your final VAT position, contact CIS, and close your PAYE scheme when you stop employing staff. You may also have responsibilities to employees, customers and suppliers that need to be settled. HMRC: closing steps.

Make a list of:

• unpaid invoices

• outstanding bills

• recurring subscriptions

• contractual commitments

Keep access to your records, and a way to receive final payments, until these are sorted out.

Revisit advance tax payments

If your future income is lower, you may be able to reduce your payments on account (advance payments towards your next tax bill). Base your estimate on your full tax position. And remember that if you reduce them too far, you can be charged interest on the shortfall. HMRC: payments on account.

Hold on to the money you’ve set aside for your final tax bill until the calculation is clear. Stopping a business today doesn’t mean all its tax has already been paid.

Keep the records

The usual rule for sole traders is at least five years after the relevant 31 January filing deadline, not five years from the day you close the business. Other record-keeping rules may also apply. HMRC: retention periods.

Going back to employment but keeping a small business running? Then you may not be stopping self-employment at all. Keep records for both, and report each income through the right route.