Stop being self-employed

When you stop being self-employed, you must tell HMRC and complete a final Self Assessment tax return. Failing to notify HMRC properly means you will continue to receive tax return reminders and may face penalties for late filing, even if you owe no tax.

This guide covers the essential steps to close your sole trader business correctly, including what to do if you were VAT registered, how long to keep records, and reliefs available if you made a loss.

Telling HMRC you have stopped trading

You must notify HMRC as soon as you stop being self-employed. If you do not, HMRC will continue expecting tax returns and may issue penalties.

Notifying HMRC when you stop being self-employed

Requirements and deadlines for telling HMRC you have stopped trading as a sole trader.

Earliest notification date: No more than 7 days before you actually stop self-employment
Online notification: Complete the 'Stopping self-employment' form via Government Gateway
Telephone notification: Call HMRC Self Assessment helpline on 0300 200 3310
CIS contractors telephone: Call 0300 200 3210 to cancel CIS registration
Information required: National Insurance number and Unique Taxpayer Reference (UTR)
Earnings threshold for registration: Do not need to be registered if you earn £1,000 or less in a tax year

You must tell HMRC if you stop trading as a sole trader or leave a business partnership. If you do not notify HMRC, they will continue sending Self Assessment tax returns and may issue late filing penalties or create estimated tax bills.

Tell HMRC you have stopped being self-employed

What happens when you notify HMRC

Once HMRC processes your notification, they will:

Stop sending you Self Assessment returns after your final one
Cancel your Class 2 National Insurance liability
Update your tax record to show you are no longer self-employed

HMRC may take up to 3 weeks to process your request. If you are close to the 31 January deadline, notify them early to avoid automatic penalties.

Your final Self Assessment tax return

You must file a tax return for the tax year in which you ceased trading. This is separate from notifying HMRC that you have stopped.

Final Self Assessment deadlines after stopping self-employment

Tax return filing and payment deadlines for the tax year in which you cease trading as a sole trader.

Paper return deadline: 31 October following the end of the tax year
Online return deadline: 31 January following the end of the tax year
Payment deadline: 31 January following the end of the tax year
Example (cease in 2024/25): Paper by 31 October 2025, online and payment by 31 January 2026

You must submit a Self Assessment tax return for the tax year in which you ceased trading. This must include trading income from the start of your accounting period to your cessation date, plus any capital allowances, balancing charges, and terminal loss relief claims.

Self Assessment tax return deadlines

What to include in your final return

Your final Self Assessment must include:

Trading income from the start of the tax year to your cessation date
Any untaxed income from employment, dividends, or savings
Capital allowances balancing adjustments (not standard allowances)
Any terminal loss relief claim
Capital gains from selling business assets

If you had an accounting period that did not match the tax year, the basis period reform from April 2024 simplifies your final calculations.

Basis period reform and final year rules

How basis period reform affects final Self Assessment calculations from 2024/25 onwards.

Reform effective date: 6 April 2024
New tax year basis: Businesses taxed on profits arising in the tax year itself
Final year basis period starts: Day after end of previous year's basis period
Final year basis period ends: Date of cessation
Simplification: No special cessation rules needed under tax year basis

From 2024/25, the tax year basis applies to all self-employed businesses. This simplifies final year calculations as profits are simply those arising from the start of the tax year to the cessation date.

Basis Period Reform

Penalties for late filing

If you miss the filing deadline, HMRC will charge automatic penalties, even if you owe no tax.

Self Assessment late filing penalties

Automatic penalties for filing Self Assessment tax return late.

1 day late: £100 fixed penalty (applies even if no tax owed)
3 months late: £10 per day (up to 90 days = £900 maximum)
6 months late: 5% of tax owed or £300, whichever is higher
12 months late: Additional 5% of tax owed or £300, whichever is higher
Maximum penalty: Up to 100% of tax owed in serious cases

Penalties are cumulative. Filing 12 months late can result in £100 + £900 + two 5% penalties. Partnership returns incur penalties for all partners if late.

Avoiding penalties

To avoid penalties:

File your return by 31 January (online) or 31 October (paper)
Pay any tax owed by 31 January
If you cannot pay in full, contact HMRC to arrange a Time to Pay agreement
Appeal if you have a reasonable excuse for late filing

Capital allowances when you stop trading

In your final year, you cannot claim standard capital allowances. Instead, you must calculate balancing adjustments.

Capital allowances on business cessation

Balancing adjustments replacing standard capital allowances when closing a business.

Cessation rule: Enter balancing charge or balancing allowance instead of claiming capital allowances
Balancing charge trigger: Disposal proceeds exceed remaining pool balance
Balancing allowance trigger: Available for single asset pools or when closing business
Asset valuation rule: Use sale price, or market value if gifted, converted to personal use, or sold below value

In the year of business closure, standard capital allowance claims are replaced by balancing adjustments. A balancing charge is added to taxable profits if disposal proceeds exceed the pool balance. A balancing allowance is deducted from profits if there is unclaimed value from writing-down allowances.

Capital allowances when you sell an asset

Practical example

If you have equipment with a written-down value of £5,000 in your capital allowances pool:

If you sell it for £7,000: You have a £2,000 balancing charge (added to taxable profits)
If you sell it for £3,000: You have a £2,000 balancing allowance (deducted from taxable profits)
If you keep it for personal use: Use market value as the disposal proceeds

If you made a loss in your final year

If your final 12 months of trading resulted in a loss, you may be able to claim terminal loss relief.

Terminal loss relief for sole traders

Loss relief available when a sole trader or partnership ceases trading with a loss in the final 12 months.

Eligibility: Loss in the final 12 months of trading
Carry-back period: Loss can be carried back against profits of the same trade in the cessation year and 3 prior years
Order of set-off: Start with the most recent year first (LIFO)
How to claim: Include in Self Assessment tax return or write to HMRC
Claim deadline (2024/25 cessation): 5 April 2029

HS227 Losses helpsheet

How terminal loss relief works

Terminal loss relief lets you carry back losses to offset against profits from earlier years. This can generate a tax refund from HMRC.

Example: If you made a £10,000 loss in your final year and had £25,000 profit in the previous year, you can set the loss against that profit and reclaim the tax you paid.

You must specify how you want the loss allocated across the eligible years. Starting with the most recent year usually gives the best result, but consider your tax rates in each year.

Reducing your payments on account

If you have been making payments on account, you can apply to reduce them when ceasing self-employment.

Payments on account on cessation

Reducing or adjusting payments on account when closing your self-employed business.

Payment on account threshold: Not required if previous year's tax was under £1,000
Alternative threshold: No payments on account if 80%+ already collected via tax codes or deductions at source
First payment date: 31 January
Second payment date: 31 July
Reduction deadline: 31 January after end of tax year
Reduction eligibility: Business profits or other income goes down, or tax relief goes up
Form: SA303 or online service

When ceasing self-employment, you may be able to reduce your payments on account using form SA303 or the online service. Cessation qualifies as income going down. If your actual bill exceeds your reduced payments, interest will be charged on the shortfall.

Claim to reduce payments on account

Ceasing self-employment qualifies as a reason to reduce payments on account because your income has reduced. Use form SA303 or the online service to make the claim.

Warning: If you reduce payments too much and your actual bill is higher, HMRC will charge interest on the underpayment. Be realistic about your final year profits.

National Insurance when you stop

When you cease self-employment, your National Insurance obligations change.

National Insurance when stopping self-employment 2025/26

Class 2 and Class 4 National Insurance treatment when you cease trading as a sole trader.

Class 2 NI change from April 2024: Self-employed people no longer liable to pay Class 2 NICs
Small Profits Threshold 2025/26: £6,845 (Class 2 treated as paid if profits at or above this)
Voluntary Class 2 rate: £3.50 per week to protect State Pension record
Class 4 lower profits limit: £12,570
Class 4 upper profits limit: £50,270
Class 4 rate (between limits): 6%
Class 4 rate (above upper limit): 2%
State Pension age: No Class 2 or Class 4 due from start of tax year following State Pension age

When you notify HMRC that you have stopped trading, they will cancel your Class 2 NI liability. Class 4 NI is calculated on your final period profits via Self Assessment. You can continue making voluntary Class 2 contributions to protect your State Pension entitlement.

Self-employed National Insurance rates

Protecting your State Pension

If you are not working after stopping self-employment, you may have gaps in your National Insurance record. Consider:

Making voluntary Class 2 contributions (£3.50 per week) to protect your pension
Checking your State Pension forecast to see if you need more qualifying years
Credits may be available if you are claiming certain benefits

If you are VAT registered

VAT-registered sole traders must cancel their registration when they stop trading.

VAT deregistration when stopping self-employment

Requirements for cancelling VAT registration when you cease trading or fall below the threshold.

Notification deadline: Within 30 days of becoming ineligible
Deregistration threshold: Below £88,000 taxable turnover
Stock and assets rule: If VAT on remaining stock/assets exceeds £1,000, account for it on final VAT return
Processing time: HMRC typically requires 3 weeks to confirm cancellation
Record retention: Keep VAT records for 6 years after cancellation

Cancel your VAT registration

Your final VAT return

On your final VAT return, you must account for:

All outstanding VAT on sales and purchases
VAT on any stock or assets you are keeping (if total VAT exceeds £1,000)
Capital goods scheme adjustments if applicable

Submit your final return within one month and 7 days of your deregistration date.

Selling your business or assets

If you are selling your business or business assets, you may qualify for Business Asset Disposal Relief (formerly Entrepreneurs'' Relief).

Business Asset Disposal Relief for sole traders

Reduced Capital Gains Tax rates when selling a sole trader business or business assets.

Previous name: Entrepreneurs' Relief
CGT rate (before 6 April 2025): 10%
CGT rate (6 April 2025 to 5 April 2026): 14%
CGT rate (from 6 April 2026): 18%
Lifetime limit: £1,000,000 (cumulative, not annual)
Ownership requirement: Must have owned the business for at least 2 years
Asset disposal deadline: Within 3 years of cessation to qualify for relief
Claim deadline (2024/25 disposal): 31 January 2027

Business Asset Disposal Relief reduces Capital Gains Tax on qualifying business disposals by sole traders and business partners. You must have owned the business for at least 2 years and must dispose of assets within 3 years of ceasing to trade.

Business Asset Disposal Relief

Planning your exit

If you have significant assets to sell:

Dispose of assets within 3 years of cessation to qualify for the relief
Keep evidence of the 2-year ownership requirement
Consider timing to minimise CGT rates (rates increase in April 2025 and again in April 2026)
The £1 million lifetime limit applies across all qualifying disposals

How long to keep your records

You must keep business records for several years after closing, in case HMRC opens an enquiry.

Record keeping after stopping self-employment

How long to keep business records after you cease trading as a sole trader.

Minimum retention period: At least 5 years from 31 January following the end of the relevant tax year
Example (cease in 2024/25): Keep records until at least 31 January 2031
VAT records (if registered): 6 years from date of record
What to keep: Sales and income records, purchases and expenses, bank statements, Self Assessment returns

Self-employed record keeping

What records to keep

Store securely:

All invoices, receipts, and bank statements
Copies of your Self Assessment tax returns
HMRC correspondence and payment confirmations
VAT records if you were registered (keep for 6 years)
Capital gains calculations and supporting evidence
Records of assets transferred to personal use

Digital copies are acceptable as long as they are complete, accurate, and readable.

Key deadlines summary

Use this timeline to ensure you complete all requirements.

Sole trader cessation deadlines summary

Complete summary of all key deadlines when closing a sole trader business.

Notify HMRC of cessation: As soon as possible after stopping (no more than 7 days before actual cessation date)
Cancel VAT registration: Within 30 days of ceasing to be eligible
Final Self Assessment (paper): 31 October following end of tax year
Final Self Assessment (online): 31 January following end of tax year
Pay final tax owed: 31 January following end of tax year
Terminal loss relief claim: 5 April 4 years after end of cessation tax year
Business Asset Disposal Relief claim: 31 January 2 years after end of tax year of disposal
Dispose of assets for BADR: Within 3 years of cessation
Keep business records: At least 5 years from 31 January after tax year end

Stop being self-employed

Common mistakes to avoid

Not notifying HMRC: You will receive penalties for missing returns you did not know you had to file
Missing the VAT deadline: You have only 30 days to cancel VAT registration
Forgetting about assets: Using business assets personally triggers a deemed disposal at market value
Destroying records too early: HMRC can enquire up to 6 years back (20 years if they suspect fraud)
Missing terminal loss relief: Check if you are eligible before finalising your return

Getting help

If you are unsure about any aspect of closing your self-employment:

Contact HMRC Self Assessment helpline: 0300 200 3310
Use HMRC webchat for quicker responses
Consider an accountant if you have complex affairs or significant assets
Check if you qualify for free help from TaxAid or Tax Help for Older People

Business Context Testing

Content Graph

Guvnor

Stop being self-employed

Telling HMRC you have stopped trading

What happens when you notify HMRC

Your final Self Assessment tax return

What to include in your final return

Penalties for late filing

Avoiding penalties

Capital allowances when you stop trading

Practical example

If you made a loss in your final year

How terminal loss relief works

Reducing your payments on account

National Insurance when you stop

Protecting your State Pension

If you are VAT registered

Your final VAT return

Selling your business or assets

Planning your exit

How long to keep your records

What records to keep

Key deadlines summary

Common mistakes to avoid

Getting help

Compliance Assistant

🧪 Business Context Testing

◉ Content Graph

Telling HMRC you have stopped trading

What happens when you notify HMRC

Your final Self Assessment tax return

What to include in your final return

Penalties for late filing

Avoiding penalties

Capital allowances when you stop trading

Practical example

If you made a loss in your final year

How terminal loss relief works

Reducing your payments on account

National Insurance when you stop

Protecting your State Pension

If you are VAT registered

Your final VAT return

Selling your business or assets

Planning your exit

How long to keep your records

What records to keep

Key deadlines summary

Common mistakes to avoid

Getting help

Related guides in Business Structure

Business Context Testing

Content Graph