In the past year the performance of many businesses has gone down the graph. Many high street retailers were forced to close their business as they were not making enough profits.
While talking to an event manager, Helen, who was working as a sole trader, reported that her business did not perform well and she did not have any profits to report. In the future she thinks that she will have to diversify her business and is looking to start a different business.
Would it be wise to de register herself as a sole trader so she didn't have to fill in self- assessment tax return until she closes her business and start a new one.
De registering for self- assessment if you are earning less than £ 1000 per year might sound like a good idea as it will save the hassle of filling the self-assessments and the anxiety of meeting the deadlines and incurring penalties if the deadlines are not met.
However filing the self-assessment tax return even though you are not are earning less than £ 1000 a year or you are making a loss can be advantageous:
For example, after the outbreak of the Covid- 19 when the sole traders and other self-employed who were facing difficulty in the cash flows, the government introduced certain grants to help them with the cash flows. The self-employed who were facing some financial difficulty were given a grant through a Self-employed income support scheme. These grants were given to those who had traded and filled in the self-assessment tax returns for 2018/19, 2019/20.
Those who didn't fill in the self-assessment tax return had to suffer as they couldn't get the grant as they couldn't proof to HMRC that they were doing business, making profit or loss and that the business activity has decreased due to Covid-19.
If you want tax free child care you need to be filing self- assessment tax return in order to prove that you are self-employed and you might want to continue sending in self-assessment tax returns even though you are making loss.
If you have decided to de- register:
Firstly, you should inform HMRC that you no longer want to fill in the self-assessment tax return by filling this form here.
If you want to discontinue filling in the self-assessment tax return because you are earning less than £1000 you can mention in the form that you stopped being self-employed on 5 April.
Secondly, you should send your final self- assessment tax return. While you will be stating your trading income and the expenses occurred for the tax year you should also calculate if you owe any capital gains tax on any assets that you might have disposed of.
Don't forget to claim any of the following relief if they apply to you as it will reduce your tax bill:
Terminal Loss Relief:
Your loss in the last tax year can be offset against the profit in the last three years.
You might be eligible for entrepreneur`s relief if you owned the business for at least 2 years and you sell a business asset. If you qualify for entrepreneur`s relief you might be able to reduce your capital gains tax bill.
You might also want to cancel your VAT registration if your trading income isn't meeting the threshold or you are planning to close down your business. To learn more about the relief click here.
If you want an accountant in Croydon to help you with the tax returns or with your final tax return contact Taxaccolega at 020 8127 0728 or drop us a message at here and we will be happy to get back to you.