According to some statistics, 25 per cent of small businesses collapse in their first year of trading. A further 55 per cent of self-employed business owners fold after five years. Even though you no longer have a business you may still be liable to pay tax and national insurance contributions.
In the unfortunate event that you have to cease trading, you must inform HMRC who will advice you whether you owe NI and tax, and if so how much. In some cases you will be entitled to a tax refund. There are several ways in which you can contact HMRC to inform them you are closing your business depending on the type of business you have.
Self-employed / sole traders
Sole traders are entitled to a three year tax free buffer – although still have to fill in a Self-Assessment Tax Return. Regardless of whether you are entitled to pay tax or not you must inform HMRC you have ceased trading otherwise they will fine you for not submitting your self-assessment tax return. You can inform them of your change in circumstances online by submitting a simple form. If you are a subcontractor you should phone HMRC´s CIS hotline on 0300 200 3210.
If you employ staff and cease trading you must contact HMRC and file a Full Payment Submission on your final payroll. Any outstanding PAYE and National Insurance should be deducted before the deadlines.
If you are VAT-registered
If you registered your business for VAT you must inform HMRC of your decision to wind up your business and ask them to remove you from the VAT register. Take note that you must do this in writing within thirty days of ceasing trading – otherwise you will have to pay a penalty fine.
If you have shares or interest in a company that is liable for Corporation Tax you should file a Company Tax Return and pay any tax due during the winding up process. If you sell any assets of the company you must declare the same as capital gains and you may also have to show any personal gains or losses in accordance with the number of shares you owned in the company.
What tax and National Insurance can you claim?
Closing down your business incurs costs such as administration, postage and utility bills, all of which can be claimed as allowable expenses. If you were self-employed and made a loss against your tax bill in the last three years you can apply for a refund by completing form 227 from the HMRC website.
If your company made a loss in its final accounting period, there is a possibility you can offset it against total profits over the previous three years in order to reduce the amount of tax payable when you close your business.
If you need tax advice with regards winding up our business, or more importantly, tax advice that will help your small business avoid insolvency contact Taxaccolega, a low fixed fee chartered accountants in London, today on 08000 235 234 or email firstname.lastname@example.org.