Self-employment can come to an end for many reasons. But how exactly do you deregister as self-employed? You can find all the information you need in this blog.
Contact HMRC
If you decide to stop sole trading, you need to inform HMRC. Let them know if you wish to end or leave a business partnership too. You can easily do this online with your National Insurance (NI) and Unique Tax numbers.
For earnings of £1000 or under
It is not necessary to be registered as self-employed if you aren’t earning more than £1000 each tax year. However, it can be used for proof of self-employment or to make Class 2 NI payments. You must contact HMRC if you want to end self-employment solely because you are earning £1000 or less. Let them know that you have stopped sole trading at the end of the tax year (5th April).
Send final Self Assessment tax return
After you have deregistered, you need to complete a final Self Assessment tax return. This must be sent before 31st January.
This process involves several calculations including:
- Trading income
- Allowable expenses, including costs required to close down your business
- Capital allowances, counting any balancing charges if business equipment or machinery has been sold
- Capital Gains Tax, which may be owed after selling or disposing of assets
- Final profit or loss
When ending a partnership, a final Partnership Tax Return needs to be sent. This should be done by the nominated partner before 31st January.
Throughout the year, there are a few deadlines that will guide you through the Self-Assessment process. More information about these deadlines can be found here. For further assistance with tax returns, you can hire an accountant or a similar professional.
Claim tax relief
Sometimes, you can claim tax relief to reduce your final tax bill:
- Business Asset Disposal Relief, formerly known as the Entrepreneur’s Relief, can reduce your Capital Gains Tax.
- Overlap relief prevents your profits from being taxed twice, given you stop trading during a tax year.
- Terminal loss relief offsets a loss made in the last tax year. This is done against the profits you made in the past three tax years.
Cancel VAT registration
Like deregistering as self-employed, you (and your partnership) must also deregister for VAT online. HMRC should confirm and give you a formal cancellation date within three weeks. This is the date you have officially stopped trading.
Finalise legal obligations
To finalise deregistering as self-employed, you must meet your legal obligations. You need to close your PAYE scheme if you have employed people. Then, the final payroll reports should be sent to HMRC.
You may be held responsible for your outstanding business debts, even if you’re no longer self-employed. If you are unable to pay, creditors may choose to take you to court or make you bankrupt. If you find yourself in this situation, the Individual Voluntary Arrangement can be offered as an alternative.
In order to stop trading as a contractor or subcontractor, you must deregister with the Construction Industry Scheme (CIS). This can be done by calling the CIS helpline.