Closing down your sole trader business? What to do step by step

Are you thinking of stopping self-employment? Whether it’s for good or just a break, it’s important to do things properly.

Not only is it important to finish things properly with colleagues, partners, suppliers and customers, but you also need to do things by the books when it comes to HMRC.

1. Finish up your work

For many reasons, it’s important that you finish any jobs or work you agreed to do.

Complete any outstanding projects, send your final invoices, and notify clients that you’re closing your business. Be transparent and open.

2. Inform HMRC you’ve ceased being self-employed

Let HMRC know you’ve stopped trading. You can tell them through your Government Gateway account or by calling them directly. If you don’t do this, HMRC will still expect tax returns, even if you’ve made no income.

Once you notify them, they’ll confirm the date and update your records. You’ll still need to file your final Self Assessment tax return – we’ll cover that below.

3. Pay any outstanding tax

HMRC will expect a final tax return after the end of the tax year in which you stopped trading. This covers your income up to the date you closed. You might also need to pay Class 2 National Insurance if your profits were over the threshold. If you’ve made a payment on account and ended up earning less than expected, you could be due a refund. Keep an eye on your online account.

4. Cancel your VAT registration (if applicable)

If you’re VAT registered, you need to notify HMRC that you’re cancelling your registration. You can usually do this online. After that, you’ll need to submit a final VAT return and pay any tax due. More details here: How to cancel your VAT registration.

5. Deal with PAYE if you have employees

If you were running a PAYE scheme, you’ll need to close it down. This involves submitting a final Full Payment Submission (FPS) and telling HMRC the scheme is ending. See the official guidance here: closing a PAYE scheme.

6. Let your clients and suppliers know

Let people know you’re wrapping things up. Clients, suppliers, anyone you deal with – just so everyone’s clear on what’s left to sort. Close your business bank accounts once everything’s settled and all payments have cleared.

7. Keep your business records

Even after closing, you’re legally required to keep your records for at least five years from the 31 January deadline following the end of the relevant tax year. This includes sales, expenses, receipts, and bank statements. See HMRC’s record-keeping guidance.

8. De-register from CIS (if relevant)

If you were registered under the Construction Industry Scheme, let HMRC know you’re no longer working in the industry. You can de-register here.

9. Review your pension or savings

If you were paying into a personal pension, you can usually keep contributing even after you’ve stopped trading. It might also be a good time to revisit your retirement plans and consider any changes now that your business is closed. Take a look at our pensions section.

10. Planning to go self-employed again?

You can re-register with HMRC whenever you like. Your old Unique Taxpayer Reference (UTR) stays with you, so it’s easy to pick things up again.

Closing down doesn’t have to be messy

Wrapping up a sole trader business is fairly straightforward if you follow the right steps.

The most important thing is not to ignore HMRC – file your return, pay what you owe, and keep your paperwork in order.

If you’re unsure about anything, get in touch with an accountant before submitting your final return. Getting it right now will save you hassle later.