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The decision to close or sell a business can be a difficult one to make and a stressful time but careful planning can help.
It is really important to let HM Revenue & Customs (HMRC) know as soon as possible if you stop trading or close your business so that they can help to get your tax affairs in order. If you owe tax and have difficulty paying it, you may be able to negotiate an agreement with HMRC for more time to pay. And in some circumstances, you may even be able to claim back some tax.
This guide explains what you need to do and who you need to contact to let HMRC know what's happening.
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When closing or selling a business it's important to let HMRC know so that they can avoid sending you unnecessary correspondence or asking you for payments that are not due.
The specific circumstances of your business (for example whether you are a sole trader, partnership or limited company and whether you have employees or not) will determine which areas of HMRC you need to let know that you have stopped trading or are selling your business.
If you're no longer self-employed you should write to your Tax Office to tell them that you have stopped trading or closed your business. You'll still need to complete your tax return (form SA100) and the supplementary self-employment pages for the tax year in which your self-employment ended. For example, if you stopped trading on May 15 2009, you will need to fill in a tax return for the tax years up to and including 2009-10.
Enter the date you stopped being self-employed on the self-employment pages (form SA103S or SA103F).
If you sell or dispose of assets, including business assets - for example buildings, equipment, fixtures and fittings, or even the business's reputation ('goodwill') - you may also need to complete form SA108 - the Capital Gains Tax summary pages.
Capital Gains Tax on business assets
If you leave a partnership during a tax year you'll need to fill in your individual tax return (form SA100) and the partnership supplementary pages (SA104S or SA104F) for the tax year in which you stopped being a partner. If the partnership itself has ended the nominated partner will need to complete the partnership return (form SA800) to cover the period up to the date it ended.
Find a form - Self Assessment forms
If you sell or dispose of assets - whether they be yours personally or those owned by the partnership, such as buildings, equipment, fixtures and fittings, or even the business's reputation ('goodwill') - you may have to show details of your share of the gain or loss on form SA108 - the Capital Gains Tax summary pages.
Capital Gains Tax on business assets
You must tell HMRC when you stop being self-employed as this will affect your Class 2 National Insurance contributions. You can do this by calling HMRC's National Insurance Self-employed Helpline.
National Insurance Self-employed Helpline
If you have shares or an interest in a company or organisation that's liable for Corporation Tax, the company may still have to file Company Tax Returns and pay Corporation Tax during the closing or winding-up process when the company stops trading.
Any capital gains made when your company sells or disposes of its business assets should be accounted for through its Company Tax Return.
Selling or closing your company and Corporation Tax
You may have to show details of gains or losses you personally make on the disposal of your shares or interest in the company or organisation on form SA108 – the Capital Gains Tax summary pages.
You must let HMRC know as soon as possible if you have stopped trading. You must also complete end-of-year returns up to the date you ceased trading. You will also need to pay any outstanding PAYE tax and National Insurance deductions within set deadlines.
PAYE if your business closes or changes
If you sell your business, you will also have to follow regulations that set out your responsibilities to your employees. You can read more about these regulations on the Business Link website.
Responsibilities to employees if you buy or sell a business (Opens new window)
You will need to deregister from VAT and the links below will explain:
For information on what you can claim back after deregistering see section below: 'How to reclaim money or reliefs which can help reduce your tax bill'.
Changing your VAT registration details or deregistering from VAT
You should call HMRC's CIS Helpline as soon as possible if your subcontractor business ceases to trade.
Reporting changes to a subcontractor business
If you stop trading as a contractor and are registered under CIS you may need to:
You should call HMRC's CIS Helpline as soon as possible if your contractor business ceases to trade.
Contractor registration and obligations
The above list is not exhaustive and does not cover all areas of HMRC's business. If the business area you are looking for is not mentioned above or you are in any doubt please contact your Tax Office.
There will be costs involved in the process of closing down your business, such as the cost of administration, postage and telephone charges to notify everyone.
Many of these costs may be allowable expenses, which can be offset against your tax bill.
Tax allowances and reliefs if you're self-employed
Tax allowances and reliefs - directors
You can find out more about allowable expenses and reliefs for businesses that are liable for Corporation Tax by following the link below.
How to complete and file your Company Tax Return
If you were self-employed and you've made a loss, you may be able to offset this loss against your tax bill for the previous three years.
Accounting for losses if you're self employed - download help sheet 227 Losses (PDF 55K)
If your company or organisation has made a loss in its final accounting period, the company may be able to carry it back to set against its total profits over the previous three years.
No Corporation Tax to pay and refunds
Read more about Corporation Tax and losses when a company stops trading
Once you have cancelled your VAT registration, there are some limited circumstances in which you can reclaim VAT paid on your purchases. The link below explains those circumstances and tells you what you can claim and how you can reclaim any VAT you are owed.
Reclaiming VAT after you deregister
Being self-employed and selling or disposing of business assets when you stop carrying on the business may mean you're liable to Capital Gains Tax on any gains you make. However, you may be able to claim reliefs (particularly Entrepreneurs' Relief) that may reduce or postpone that gain.
Capital Gains Tax reliefs for business assets
You should also bear in mind that, if your business is a limited company, you may be able to claim Income Tax relief if your shares have become worth next to nothing.
You don't have to deal with HMRC personally. An accountant or other adviser can act on your behalf.
Authorising an accountant to deal with HM Revenue & Customs for you
HMRC expects all customers to make payments when they are due. However they understand that as a result of circumstances outside your control, this isn't always possible - especially during the current economic climate.
Letting HMRC know that you have stopped trading or a selling your business will help avoid them issuing unnecessary payment demands to you.
The following guidance explains what to do if you think you can't pay what you owe HMRC.
Advice for businesses if you can't pay what you owe HMRC
If you've received a bill from HMRC that you can't pay, it's important to contact them as soon as possible to try to come to an arrangement. They may give you extra time to pay possibly by instalments. If you don't, and your bill remains unpaid, HMRC will start proceedings to recover the money.
The following guidance sets out what you need to do and who to contact.
What could happen if you don't pay HMRC what you owe?
Find your Tax Office for personal or business taxes
Companies House website (Opens new window)
Business Link website - Buy or sell a business (Opens new window)
