Closing as a sole trader: what to tell HMRC and when

Quick answer

Tell HMRC you have stopped self-employment using its online service once you stop trading, then file a final Self Assessment return for the tax year you stopped in, by the usual 31 January deadline. If you are VAT registered, cancel it. If you employ anyone, close your PAYE scheme. Everything else is tidying up.

Sole traders do not have a company to dissolve. You are the business, so “closing” means telling the right people, finishing the tax for your last year and switching off the things that carry your trading name. It is simpler than closing a limited company, but missing one item can cost you a penalty or a stray bill months later. Use this as a checklist.

The timeline at a glance

Tell HMRC you have stopped

• Use GOV.UK’s service to tell HMRC you have stopped being self-employed. You sign in with your HMRC account. An accountant acting for you can use their own route.
• Note the exact date you stopped trading. It defines your final accounting period.
• If you are stopping because you will earn £1,000 or less in a tax year, GOV.UK says to tell HMRC after the end of the last tax year you were self-employed.
• If you work in construction under the Construction Industry Scheme, contact the CIS helpline soon after you stop, as GOV.UK advises.

File your final Self Assessment return

• You still need to send a return for the tax year in which you stopped. It reports trading income up to your last day, allowable expenses, capital allowances and your final profit or loss.
• Include any Capital Gains Tax due if you sold business assets such as a van or equipment.
• Ask about reliefs that can lower the final bill. GOV.UK lists Business Asset Disposal Relief, overlap relief and terminal loss relief as options to check.
• File and pay by the deadline. GOV.UK’s Self Assessment deadlines page gives 31 January after the end of the tax year for online returns and payment.
• Once that final return is in, HMRC should not expect further returns from your self-employment, unless you have other income that requires one.

Cancel VAT and close payroll, if they apply

• VAT: if you are registered, you must cancel the registration. GOV.UK’s VAT registration guide covers how to cancel. Expect to submit a final VAT return, and check whether you need to account for VAT on any stock or assets you keep.
• PAYE: if you employ staff, pay final wages, send final payroll reports and close the PAYE scheme.
• National Insurance: GOV.UK notes that people earning £1,000 or less can choose to stay registered to pay voluntary Class 2 contributions, which can protect your State Pension record. Check your own position before deciding.

Customers, suppliers and money

• Send final invoices promptly and chase anything outstanding. Customers find it easier to forget a business that has closed.
• Cancel subscriptions and contracts that renew automatically: software, card readers, trade memberships, directory listings and vehicle finance.
• Tell your insurer. Some trades need run-off cover for claims about past work, so ask before cancelling public liability or professional indemnity insurance.
• Close or convert the business bank account once the last payments have cleared.
• Keep your records. HMRC can ask about your last returns, so hold on to invoices, receipts and bank statements.

Switch off the trading name online

• Email: set a closure auto-reply that says where people can go instead. Our out-of-office templates include wording for this. If you are moving to a job or new venture, our guide to business email explains how mailboxes and domains are linked, so you do not lose access by accident.
• Domain: keep it if you may return to trading or sell the name. Letting it lapse means anyone can buy it. Our domain names guide covers renewals and transfers.
• Website: replace it with a short closure notice rather than letting it break. If you were paying for upkeep, our guide to website maintenance costs helps you see what you can cancel.
• Google Business Profile and social accounts: mark the business as permanently closed so customers get an accurate answer.

Before you close: is there something to sell or keep?

• A loyal customer list, a good local reputation, a memorable name and a working website have value. Another local tradesperson may pay for them. Our guide to building a sellable brand explains what buyers look for.
• If you are closing as a sole trader to reopen as a limited company, you are changing the legal structure, not the brand. Keep the name and look customers know, and update the paperwork. A brand identity at £299 gives you consistent templates for the new invoices, quotes and letterheads, and all our prices are on the pricing page.

This checklist covers the usual steps for a UK sole trader. Tax circumstances vary, so if you have sold assets, made a loss in the final year or have other income, a short session with an accountant is money well spent.