Closing a business

1. Steps all businesses must take when closing

If you are closing rather than selling your business your approach will largely depend on the reason for closing, for example, whether it is something you have been planning for a while, or whether insolvency or personal circumstances are bringing trading to an abrupt halt. 

Plan your closure

Where possible, you would plan the date you will cease trading, and consider implications for:

• supplier and customer contracts

• agreements such as leases and subscriptions

• settling debts and bills such as loans, rent and utilities

• managing any creditors

• selling assets.

Your solicitor or accountant may be able to help you to manage these elements and choose the best approach to closing your business.

Inform and consult employees

If you have employees, you need to consider what to say and when. Some obligations apply when you close a business regardless of your legal structure.

• Redundancy and other payments. If you are closing a solvent business you must meet your legal obligations around running a fair process. This includes informing and consulting employees and paying redundancy, as well as any outstanding wages, sick pay or holiday pay. If your business is insolvent and unable to pay employees they may be able to make a claim to the UK government’s redundancy payments service.

• Pension schemes. You must meet your legal obligations to inform and consult employees about significant changes to pensions and if you are closing your business this will include terminating the occupational scheme or ending your contributions to personal schemes.

• PAYE and payroll. If you are going to stop being an employer, you need to pay any outstanding PAYE tax and National Insurance deductions within set deadlines and provide your last payroll report to HMRC and close your PAYE scheme.

Inform HMRC

Likewise, any business registered for VAT or the Construction Industry Scheme will need to inform HMRC of its closure.

• VAT registration. If you are VAT registered, you will need to cancel your registration. Once HMRC are satisfied that your registration should be cancelled, they will confirm the date and issue a final VAT Return. When filling in the final return, you must account for VAT on stock and certain assets you have at the close of business on the day your registration is cancelled.

• Construction Industry Scheme. If you are registered with this scheme as a contractor or subcontractor you should notify HMRC.

2. Stopping self-employment or being a sole trader

The UK government provides guidance on what to do if you are stopping self-employment or being a sole trader. 

Notifying HMRC

Remember that, if you earn £1,000 or less in a tax year, you do not need to be registered as self-employed. But if you wish, you can stay registered to evidence that you’re self-employed, for example to claim Tax-Free Childcare or to make voluntary Class 2 National Insurance payments to contribute to your entitlement to state pension and various benefits.

If you no longer want to be registered as self employed, you will need to notify HMRC and have your National Insurance number and Unique Taxpayer Reference (UTR) to hand.

Self assessment tax return.

You need to send a self assessment tax return for the tax year in which you stopped trading. For example, if you stopped trading on 15 May 2026, you will need to fill in a tax return for the year 2026 to 2027.

• Allowable costs. There will be costs involved in the process of closing down your business that may be allowable expenses, which can be offset against your tax bill, such as:

• cost of notifying the relevant authorities - eg HMRC, institutions, suppliers and customers

• professional services from solicitors, accountants, estate agents, etc.

• Making a loss. 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.

• Capital Gains Tax. You may need to pay Capital Gains Tax on the 'profit' (or gain) that you make from selling or disposing of assets - for example buildings, equipment, fixtures and fittings, or even the business's reputation ('goodwill').

• Tax reliefs. You may be able to claim reliefs - particularly Business Asset Disposal Relief (previously known as Entrepreneur’s relief) or overlap or terminal loss relief - that may reduce or postpone any gains. 

Dealing with insolvency

As a sole trader or self-employed you will generally be personally liable for business debts and be taken to court or made bankrupt by creditors if you cannot pay. There may be alternatives to bankruptcy for people who are self-employed, such as Scottish Trust Deeds. You should speak to an insolvency adviser.

3. Winding down a partnership

A general partnership is where all partners have an equal share of the profits, management, and liability of the company. When one or more partners leave a partnership, this leads to the dissolution of the partnership and the remaining partners will need to consider whether they will create a new one. 

In the meantime, partners need to consider the same steps outlined in section 1 for all businesses and section 2 for those who are self employed and sole traders relating to notifying HMRC, completing self-assessment tax returns, informing and consulting employees and any other notifications for VAT or the Construction Industry Scheme. 

In addition, the nominated partner will need to complete the Self Assessment partnership return (form SA800) to cover the period up to the date the partnership ended.

The UK government outlines what must be done to wind up an insolvent partnership.

There are specific steps involved in dissolving or striking off limited liability partnerships (LLPs) to remove them from the register of companies and there are various requirements for LLPs in Scotland going through liquidation and insolvency.

4. Closing a limited company

If your business is no longer trading and receiving income, and if you want to protect intellectual property or intend to begin trading again in future, you could choose to let it become dormant rather than closing it. You may need advice from your accountant or solicitor if this is a suitable route for you and whether there are any risks. You would still need to submit your annual accounts and your confirmation statement to Companies House.

If your directors and shareholders agree to close the business, you will need to cover off the points included above in section 1 of this article, and consider the UK government’s guidance on how to close a limited company.

Solvent companies

You can apply to have the company struck off the Companies Register once it has not traded for three months. To do this, you must have closed your company down legally.

Alternatively, you can start a member’s voluntary liquidation if you don’t want to run the business any more, for example if you’re retiring. There are a few steps to this process and you will need to make a declaration of solvency first.

Insolvent companies

If your company cannot pay its bills, it is insolvent. You can apply to have it struck off the Companies Register, or put the company into administration which means you can wind up the company even if you can’t pay all the debts. You could also arrange a voluntary liquidation with your creditors.

Company Tax Returns

If the company or organisation is liable for Corporation Tax, it will still have to file Company Tax Returns and pay Corporation Tax during the closing or winding-up process when the company stops trading.

Some key tax considerations to be aware of are:

• the company may be able to claim certain expenses and reliefs associated with the costs of closing down

• any capital gains made when your company sells or disposes of its business assets should be accounted for through its Company Tax Return.

• 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 previous years.

Personal gains or losses

If you make personal gains or losses on the disposal of your shares or interest in the company or organisation you will need to declare these on the Capital Gains Tax summary pages of your Self Assessment tax return.

However, you may be able to claim Income Tax relief if your shares have become worth next to nothing.