How to De-register as Self-employed?

Understanding self-employed in the UK

A person is considered self-employed if he or she runs the business for himself or herself and the onus of making it a success lies solely on him, rather than a third person unless appointed so. Although having a self-employed status has its own share of benefits, not to mention the freedom of ownership it brings along, it is not covered by the employment law. It is advisable and highly recommended to consider various pros and cons of being a self-employed person and must consider the below-mentioned lines:

  • If you have enough money to start and sustain the business?
  • Do you have a contingency plan in place in order to cater for little or no income phase?
  • Are you ready to let go of employment benefits such as holiday pay, sick pay, and employment pension contributions, etc which are otherwise not available in case of self-employment?
  • Are you ready to work without your employment colleagues?
  • Do you have enough space in order to set up your business and budget in place for purchasing the required equipment?
  • Are you confident that you will be able to manage the business and various operations associated with it such as cash flow, upkeep of records, and filing timely tax returns?
HMRC self-employed business tax guide

The number of self-employed workers has been increasing ever since 2001 and as per the statistics, the number of self-employed workers has increased from 3.3 million to approx 4.8 million by 2017. Being self-employed has its own share of advantages such as you are your own boss and have the flexibility and control along with exploring your creative and entrepreneurial side as you grow in your business. However, like any other good thing in the world, self-employment has its own share of disadvantages as mentioned below:

  1. Finding or setting up a marketing strategy and acquiring clients can be quite a challenging task in the beginning?
  2. Your income is not guaranteed and you are not sure of your income, especially during the few initial years and thus find it difficult to plan fixed and mandatory payments such as rent, mortgage, loan, and living expenses.
  3. If you are on holiday and unwell, you cannot claim holiday leave as in the case of employment.
  4. If you are self-employed it is difficult to maintain work-life balance i.e. difficult to separate your work life from home life and at times it tends to take a toll both on your physical and mental health.
  5. Self-employment tends to add isolation factors in your life because you are too busy in making sure your business achieves success and thus gets isolated and cut-down from your friend circle.
  6. For the initial few years of your business i.e. till the time your business has got a solid grasp, you have to take care of its admin requirements such as bookkeeping and regulations with compliance.
  7. The onus of success and failure of the business is only on you and no one else so you have to be sure enough to start or enter into the world of self-employment.
  8. It is difficult to get approval if you want to rent out a property because you would be asked for more documents to support your loan requirement.

Process of de-register as self-employed

However despite having a fair share of advantages over the traditional employment route, many of the self-employed leave the self-employment route in between for various reasons and opt for the employment option. HMRC has been prudent enough to foresee the possibility of a person shifting from self-employment to employment and thus included the required provisions and guidelines which need to be followed if one wants to do so. Like there is a checklist which you have followed while registering yourself as self-employment with the HMRC, you need to follow the same in case you want to de-register yourself i.e. you must tell HMRC that you have decided to stopped trading as a sole trader or if you have decided to leave or end a business partnership.

On receipt of your notification regarding cancellation of self-employment status, HMRC will then cancel your Class 2 National Contributions (NIC). However, before you go ahead and inform the HMRC about the same, you must take the following actions:

  1. You must submit your self-assessment tax returns before the deadline i.e. starting from 6th April of the current financial or assessment year and 5th April of next financial year and for those who are self-employed as a sole trader, the deadline for submitting the same is 5th Oct. While you submit your self-assessment tax return, you need to keep in mind the following points:
    • Work out your trading income.
    • Add up your allowable expenses including some of the costs involved with the closing down of your business i.e. phone costs, internet, and postage costs of letting people know about your decision.
    • Your capital allowances including any balancing charges in case you have sold out business equipment and machinery.
    • You would also need to see if you owe any capital gains tax on any of the assets you have sold or disposed of. HMRC allows you to claim certain reliefs such as entrepreneur’s relief and other tax reliefs in order to reduce the capital gains tax, however, you need to fulfill certain requirements in order to claim the reliefs such as:
      • You are a sole trader or business partner and
      • You have owned the business for at least one year before the date you have sold it off.

    Apart from entrepreneur relief, HMRC allows you to claim a few other reliefs on the Capital Gains Tax, such as

    • Overlap relief: If you have stopped trading for almost a year now, you can use this relief in order to prevent yourself from being taxed twice on your profits.
    • Terminal loss relief: This relief is provided and can be claimed to offset a loss made in your last tax year against the profits made in the 3 previous tax years.
    • Calculate your final profits and loss.
    • If you were having your business with a partner then with your decision of leaving it will also end the business partnership and you have to make sure that the nominated partner also sends a final partnership tax return as per the deadline mentioned by the HMRC.
  2. Also, you need to cancel your VAT registration in case you or your partnership was VAT registered. You can cancel your VAT registration if you are no longer eligible to be VAT registered i.e. either you have stopped trading or you have joined the VAT group. In case you have stopped trading i.e. put an end to your self-employment status, you need to ask the HMRC to cancel the same within 30 days of your eligibility to cancel the VAT registration. Once HMRC receives your deregistration application, it would take a time period of 3-4 weeks to process your application and confirm your deregistration and the official deregistration date, which is either the date when the reason for your cancellation took effect (when you have stopped trading) or the date when you have asked to de-register.
  3. While you notify the HMRC regarding the de-registration or cancellation of your VAT, you must also submit a final VAT Return for the period up to and including the de-registration date and in your final VAT return, you must take into account all the stocks and other assets as well.
  4. It is an obvious fact that you must have employed people in your business for it to work efficiently, so when you decide to let go of your self-employment status, you need to close your PAYE scheme and send final payroll reports to HMRC. In order to inform HMRC regarding the same, you are required to submit a final payroll return i.e. A full payment submission or employer payment summary. In your application to cancel your PAYE scheme, you need to:
    • Send your expenses and benefits returns.
    • Enter a leaving date on every employee’s payroll record.
    • Give every employee a P45 on their last working day.
    • Check the “final submission because scheme ceased” box.
    • Deduct and pay any outstanding tax and National Insurance to HMRC within 17 days.
    • Enter the date on which you have closed your PAYE scheme in the “Date Scheme Ceased” box. You need to enter the present or past date only and not the future date.
  5. If you are shutting down your business because you have become insolvent then in order to save yourself from bankruptcy you can opt for an Individual Voluntary Agreement because, in its absence, your creditors can take you to the court or make you bankrupt.

De-registering yourself from being self-employed opens the door to various advantages which you can avail now such as holiday pay, sick pay to name a few and also saves you from the financial perils of being self-employed and as per the adage – No one and nothing is perfect. It is you who have to work to make it perfect and the same goes for being self-employed or employed under someone else.

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