If you decide to become a sole trader in the UK, it does not have to be forever. You can choose to end your UK self-employment at virtually any time. It’s up to you when and for what reason you do so. However, you must remember that there are certain obligations that come with ending self-employment in the UK.
Ceasing self-employment in the UK – what do you need to do?
When you end your business, you are required to 'deregister’ from self-employment. The best way to do this is to write to HMRC (or use their online form) and inform them as soon as possible that you are no longer self-employed.
HMRC will not automatically assume that you have decided to end self-employment just because you are currently employed by someone else or claiming unemployment benefit.
What formalities are required to end self-employment in the UK?
As well as informing HMRC that you have ceased to be self-employed in the UK, there are other formalities you need to complete:
- if you are registered as a VAT taxpayer, consider when to cancel your VAT registration – https://www.gov.uk/vat-registration/cancel-registration,
- if you work in the construction industry – inform HMRC by calling the construction industry helpline (0300 200 3210) that you are no longer working in the construction industry,
- complete your self-assessment tax return to declare your final period of sales – but you must wait until the end of the tax year to do this,
- seek advice if you have sold your business, business assets or business property – in some cases this may give rise to capital gains,
- pay any outstanding tax,
- keep business records (usually for 6 years),
- Make sure HMRC has your correct address for 12 months after you file your final tax return. Provide HMRC with a correspondence address if you move within this 12 month period.
More information on closing a business in the UK can be found at: https://www.gov.uk/stop-being-self-employed and https://www.gov.uk/closing-a-limited-company
The dangers of not notifying HMRC immediately
If you do not tell HMRC immediately that you are no longer self-employed, they may continue to send you self-assessment tax returns after you have ceased trading. If you ignore these returns, you may be liable to prosecution.
HMRC may also issue an estimated tax assessment if you do not complete and submit your tax return on time. Such an estimate is legally enforceable and can only be overturned by submitting a tax return within 3 years of the date of the estimate. After this period it may not be possible to change the estimate.
Alan ceased trading on May 30, 2016, and took up employment. He did not inform HMRC that he had ceased trading and soon after moved without providing HMRC with a forwarding address. Although Alan only traded for a few months in the tax year ending April 5, 2017, he will still need to complete a tax return for that year. It is likely that he will also be sent a tax return for the tax year ending April 5, 2018.
