Self-employment: stopping your business

Stopping trading

There are many reasons why you may stop your self-employment or stop being a partner in a partnership, including:

• Your business is making losses.
• You decide to retire.
• You sell your business to a new owner.
• You decide to work for someone else as an employee rather than run your own business.

We recommend that you obtain professional advice if you are selling your business or share in a partnership, or if you decide to incorporate and change your legal structure from self-employed or a partnership to a limited company.

Trading allowance

This page is about when you have completely stopped your business. It may be the case that if you have sales income around the trading allowance threshold, then you may not need to complete a tax return each tax year. If you are still trading but have total gross income below the trading allowance (£1,000) and choose to inform HMRC that you will not be completing a tax return they will treat this as if you have stopped your self-employment even though you may still be running your business. You don’t have to stop completing a tax return if you claim the trading allowance and our trading allowance guidance explains when you may want to continue being registered as self-employed and filing a tax return. 

GOV.UK guidance states that if you stop completing a tax return because your total gross trading income is below the trading allowance then you should state that your business stopped trading on 5 April. 

Notifying HMRC

You should tell HMRC when you stop your self-employment, otherwise they will just assume that your self-employment is ongoing and will continue to expect tax returns from you. As explained under the heading Tax return below, you will need to fill in a tax return for the year your self-employment ends – the exact date that you stopped being self-employed should be given. 

Depending on your business and individual circumstances, you may also need to notify other HMRC teams or government departments about stopping your self-employment, such as:

• VAT  – if you are registered for VAT then you will need to notify HMRC that you have stopped trading or sold your business 
• PAYE – if you have a PAYE scheme because you have employees then you will need to notify HMRC that you have stopped trading and so are no longer an employer
• Construction industry scheme (CIS) – if you are CIS registered then you will need to notify HMRC if you stop being self-employed or change from being a sole trader to a partner (or vice versa) or incorporate your business to a limited company.
• Universal credit – you will need to let the Department for Work & Pensions (DWP) know that you are no longer self-employed 

Tax return

You must complete a tax return for the last year you are trading, this may be a self assessment tax return or, if you cease after April 2026, it may be an end of year tax return under Making Tax Digital for Income Tax, if you are in scope of this regime.

You need to include the date you stop your self-employment on your tax return, if you don’t then HMRC may charge a penalty of £60 . You should make sure that as far as possible you include all income and expenses relating to your trade and include the date you stopped trading on the tax return.

If you do not have another reason to complete a self assessment tax return, then this may be the last tax return you need to complete unless your circumstances change, such as starting a new self-employment. However, if after stopping your business you continue to receive a notice to file a tax return then you should contact HMRC asking them to cancel the notice, otherwise you will be  expected to submit a tax return by the filing deadline.

If you have been reporting your self-employment information under Making Tax Digital then we cover what you need to do on cessation on our page When can I stop using Making Tax Digital?.

If, after you have submitted your  tax return, you receive trading income relating to the trade you have stopped or pay business expenses relating to your ceased business, then you may need to include this in a subsequent tax return (this is discussed in more detail under the heading Post cessation income and expenses below).

There are other various things you need to be aware of to get your tax affairs correct when you cease trading:

Accounting period

Your final accounting period will be from the end of your last accounting period to the date you ceased trading. So, if you usually make your accounts up to 31 March each year and decide to stop being self-employed on 31 July 2026 then your accounts for your final period of trading will be 1 April 2026 to 31 July 2026.

Preparing your accounts

When preparing your accounts so that you can complete your final tax return, you need to make sure you include all the income and expenses relating to your last tax year of trading as far as possible (but see the heading below on Post cessation income and expenses). 

If you are using the cash basis and receive income after you have stopped trading, then please see the Post cessation income and expenses heading below.  

If you are using  traditional accounting (also called the accruals basis) to prepare your accounts, then it should not matter if you receive payment for some self-employment work after you stopped trading, as the income should already be included in your accounts anyway. 

As far as possible, you need to include all business expenses relating to your trade and this may involve future costs you know you will need to pay for, these are sometimes called post cessation expenses. For example, you may have to continue to have professional indemnity insurance for a few years after you stop trading and so you should include this expense or a reasonable estimation of this cost in your final accounts.

You cannot have tax relief for expenses which relate to the cessation of trading.

Overlap relief

For tax years up to 2023/24, when a self-employment ceased some people were entitled to overlap relief. This was available if you had overlap profits. All overlap relief had to be used by the 2023/24 tax year at the latest under Basis Period Reform rules. We explain how overlap profits arose and how overlap relief had to be claimed on our Trading income: basis period reform page.

Losses

You may make a loss in your final tax year of trading. There are special rules about how to get tax relief for losses made when you cease self-employment. We cover these on our Trading losses page.

Capital allowances

You may have claimed capital allowances on capital assets you use in your business. When stopping your self-employment you may choose to sell these capital assets, gift them or continue to use them in a personal capacity.

Our page on Business expenses: capital and capital allowances covers the tax position when assets such as IT equipment or machinery are sold.

If you gift or keep the asset for personal use then you need to work out what the market value of the asset would have been if you had sold it commercially. This market value is what you would use as sales proceeds in working out if there is a balancing charge or allowance to include on your tax return. This is illustrated in the example below.

On your tax return for the tax year you stop running your business, you should not claim any capital allowances but should include any balancing charges or balancing allowances from the disposal of any capital equipment.

Tax and National insurance

You will need to pay any tax and National Insurance contributions on your profits for the tax year you stop trading. If you pay voluntary Class 2 National Insurance contributions then you will only pay it for the weeks you are self-employed therefore it is important that you accurately complete the box on your tax return which asks for the final date of trading.

If you have stopped your self-employment because of financial problems and you are unable to pay any outstanding tax and National Insurance contributions, you should contact HMRC as soon as possible. There is more information on our page Tax problems and debt. 

It may also be the case that you are due a tax refund when your self-employment stops, for example, if you are a subcontractor who is registered under the Construction industry scheme (CIS). When completing your tax return, you should check your bank details are correct, especially if HMRC have previously repaid to a business bank account which is now closed as you have stopped trading.

If you have been affected by basis period reform and are spreading transitional profits then any remaining transitional profits that have not yet been taxed will be taxed in the year you stop your self-employment, this is shown in the example Rhys under the heading, Spreading additional profits in the transition period. 

Business records

You must keep your business records for at least the usual time period after you stop trading. So, if you stop trading during the 2025/26 tax year then you must keep your business records until 31 January 2032.

Post cessation income and expenses

If you don’t prepare your final accounts using traditional accounting (accruals basis) then it is possible that not all your trading income and expenses relating to the final period of trading are included in your final accounts. Any trading income you receive after you have stopped self-employment is known as post cessation income, and any business expenses you have to pay after you have stopped self-employment are known as post cessation expenses.

Income

If you receive post cessation income that hasn’t been included in your tax return for your final tax year of trading (for example you did not use traditional accounting (accruals basis) to prepare the final accounts) then it is treated as trading income. This should be included as ‘Other taxable income’ on your tax return. Post cessation income can be reduced by any post cessation expenses which have not been accounted for. 

If you used the cash basis to prepare your accounts for your last tax year of trading, then you must continue to use the cash basis rules for any post cessation income or expenses.

It is possible to make an election to treat any post cessation income as actually arising during the final tax year of trading as long as the income was received within six years of stopping your self-employment.

The election must usually be made within one year following the 31 January after the tax year you received the post cessation income. Any additional tax will be calculated as per the tax position of the final year of trading but treated as payable as part of the tax year in which the income was received.

For more information on this election see GOV.UK.

Expenses

If there are post cessation expenses that were incurred within seven years of stopping trading and can’t be offset against any post cessation income, then you may be able to elect for these allowable business expenses to reduce your total taxable income in the year the expense was incurred. An election must be made within one year following the 31 January after the tax year you incur the expense. 

There is more information on post cessation expenses on GOV.UK.

Leaving the UK

If you stop self-employment and then leave the UK, you may have some responsibilities to meet before you can ask HMRC to close down your tax record as leaving the country is not an automatic end to any UK tax issues. If you leave your UK tax affairs in an incomplete position, then you could encounter problems if ever you return to the UK. It is very important to keep HMRC up to date with your overseas contact details. 

More information

HMRC have a YouTube video showing you how to notify them online that you have stopped your self-employment. 

HMRC’s Business Income Manual has additional information on post cessation income and expenses and how you can get tax relief.