What happens if I forget to tell HMRC I’ve stopped trading?

What “stopped trading” actually means for HMRC

When you “stop trading” in the UK, you’re essentially saying you’ve ceased carrying on a business activity that generates income. That might mean you’ve closed a shop, stopped taking freelance clients, shut down an online store, or ended a side-hustle that used to bring in money. For HMRC, this isn’t just a casual life update—it changes how they expect you to report income, what returns you should file, and whether you still need to be registered for things like Self Assessment or VAT.

People often assume that if they’re no longer making sales, everything automatically winds down on HMRC’s side. In reality, HMRC systems do not automatically know you’ve stopped. Unless you tell them, they may continue expecting tax returns and payments, and they may keep your business “live” for administrative purposes. That can lead to letters, missed deadlines, late filing penalties, and a lot of avoidable stress.

It also matters how you were set up when you were trading. The consequences and steps are different if you were a sole trader, in a partnership, running a limited company, registered for VAT, or registered as an employer for PAYE. Forgetting to tell HMRC you’ve stopped trading doesn’t necessarily mean you’ve done anything “wrong” in a criminal sense, but it can snowball into compliance issues if you ignore it.

If you forget to tell HMRC, what happens first?

The first thing that usually happens is nothing dramatic—until a deadline comes around. HMRC doesn’t send an instant “we noticed you stopped” message. Instead, they carry on as if you’re still active, and they expect the next thing in the calendar: a Self Assessment tax return, a VAT return, a PAYE submission, a Corporation Tax return, or Companies House filings (if you have a limited company).

Once a filing deadline passes without the expected return, that’s when automated processes kick in. The most common early warning sign is a letter or notification saying you’ve missed a deadline or reminding you to file. If you still don’t file, penalties may be charged even if you owe no tax. This is one of the biggest surprises people face: you can be penalised for not submitting a return even when there’s no profit or income.

Another early consequence is that HMRC may create estimates. If they think you should have filed and you didn’t, they sometimes issue an estimated assessment based on what they think you owe. Estimates can be wildly inaccurate, especially for businesses that have stopped, and disputing them is possible but time-consuming.

Late filing penalties: the most common fallout

Late filing penalties are the headline risk for many people who forget to tell HMRC they’ve stopped trading. The key point is that the obligation to file doesn’t automatically disappear just because you stopped working. If HMRC expects a return and you don’t submit it, the penalty regime may apply.

For Self Assessment, if you’re registered and HMRC has issued you a notice to file a return, you generally need to file until your Self Assessment record is closed or you’re told you no longer need to file. This catches many sole traders and freelancers who assume “no income means no return.” HMRC’s approach is more like: “if we asked for a return, file it (or get the obligation removed).”

Penalties can accumulate over time. Even if you eventually tell HMRC you stopped months ago, the system may already have raised penalties for each missed deadline. In some circumstances you can appeal penalties, particularly if you have a reasonable excuse and you act promptly, but appeals aren’t guaranteed. It’s much easier to prevent penalties than to argue them away later.

Interest and late payment charges if there’s tax owed

If you stopped trading but still owe tax for earlier periods, forgetting to notify HMRC can also cause late payment issues. This is slightly different from late filing penalties. You might file late, pay late, or both. If you owe tax and you pay after the due date, interest may be charged on the late amount. Depending on the tax type, additional late payment penalties can also apply.

This often happens when someone stops trading in the middle of a year, assumes there won’t be much to pay, and then doesn’t complete the “final” reporting properly. But even if the business has stopped, profits up to the date you ceased trading still count and still need to be reported. If you don’t report them, you can’t settle the liability correctly, and that can lead to escalating amounts and enforcement activity later.

There’s also a practical point: if you delay too long, you might lose track of records, invoices, and expenses that would reduce your tax bill. When you finally sit down to do the return, you might end up paying more tax than you needed to simply because you can’t evidence allowable expenses. Notifying HMRC isn’t the whole job, but it’s a strong nudge to close things down properly while the paperwork is still within reach.

HMRC letters and “chasing” behaviour can continue for years

One of the most frustrating things about not telling HMRC is how long the problem can linger. If you remain registered for Self Assessment, HMRC may keep issuing notices to file each tax year. That means you can rack up penalties year after year while you’re not even trading. People sometimes only discover this when they move house, miss letters, and then get hit with a sudden demand for multiple years’ penalties.

HMRC can also continue to expect VAT returns if you’re VAT registered, even if you’ve had zero sales. VAT filing obligations don’t stop automatically. Unless you deregister or notify them you’re no longer trading (and follow the proper process), they’ll keep expecting returns. Missing VAT returns can lead to default surcharges and compliance action.

If you were registered as an employer, HMRC may also expect ongoing PAYE submissions. Even if you no longer have employees, you typically need to close the PAYE scheme or submit “no payment” submissions as required, depending on your circumstances. Forgetting to do this can generate more correspondence and potential penalties.

What about being investigated? Is forgetting a big red flag?

For most people, forgetting to tell HMRC they’ve stopped trading doesn’t automatically trigger a full investigation. HMRC deals with a huge volume of taxpayers and businesses, and many compliance actions are automated. A missed return usually triggers a standard reminder and penalty cycle rather than a detective-style inquiry.

That said, if the situation drags on and becomes complicated—multiple missed returns, unpaid tax, contradictory information, or estimates that don’t match what you later submit—then the risk of deeper scrutiny rises. HMRC tends to pay more attention when they suspect there’s undeclared income or deliberate non-compliance. If you reappear years later with a story that doesn’t line up with records they hold (for example, bank interest, third-party reporting, payment processing data, or VAT history), they may ask more questions.

The difference between a forgetful mistake and something more serious often comes down to behaviour once you realise. If you act quickly, file what’s needed, and bring the record up to date, HMRC typically treats it as a compliance fix. If you ignore letters, don’t engage, and allow arrears to accumulate, the situation looks less like a mistake and more like avoidance, even if that wasn’t your intent.

Sole traders: the typical scenario and what HMRC expects

If you were a sole trader (or a freelancer registered as self-employed), the most common issue is Self Assessment. Many sole traders remain registered for Self Assessment after they stop, because HMRC doesn’t automatically remove them from the system. If you forget to tell HMRC, you may still receive notices to file returns.

What HMRC generally needs is confirmation of your cessation date and, in most cases, a final tax return including your trading income and expenses up to that date. Even if the business made a loss or no profit, HMRC can still require the return if they issued a notice to file.

There are also knock-on effects with National Insurance. If you were paying Class 2 (where applicable) or your NI was linked to self-employment status, you may need to ensure your record reflects that you’ve stopped. Otherwise, you might continue to be treated as self-employed for contribution purposes, which can affect bills or entitlements depending on your circumstances.

Another overlooked area is payments on account. If you were making payments on account for Self Assessment and then stopped trading, you might be due a reduction or repayment. But if you don’t file the return or notify HMRC, those payments may continue to be requested or you may miss the chance to reduce them in time.

Partnerships: extra layers of “final” reporting

If your business was a partnership, forgetting to tell HMRC can be messier. Partnerships have their own reporting obligations, and the partnership return is separate from each partner’s personal tax return. Even if the partnership stops trading, there may be a final partnership return to submit. Each partner also needs to deal with their personal Self Assessment position.

Where partnerships get complicated is when one partner continues in a new form (for example, the partnership ends and a sole trader carries on). The cessation date for the partnership matters. HMRC needs the correct information so that income is taxed in the right hands, for the right periods, under the right structure.

Failing to close things properly can lead to mismatches where HMRC thinks the partnership is still active and partners are still receiving partnership income. That can trigger incorrect tax calculations and repeated notices to file.

Limited companies: HMRC isn’t the only body you need to tell

If you traded through a limited company, the picture changes. A company doesn’t simply “stop” in the same way as a sole trader. The company continues to exist until it’s formally dissolved or struck off, even if it’s not trading. That means there are ongoing obligations to Companies House (annual accounts, confirmation statements) and potentially to HMRC (Corporation Tax returns, PAYE, VAT) depending on the situation.

If the company stops trading but is still open, HMRC may still expect a Corporation Tax return for the accounting period, even if it’s a dormant period or there’s no activity. Dormant status can affect what is required, but it doesn’t happen by magic. You typically need to tell HMRC the company is dormant for Corporation Tax purposes if applicable, and you may need to file dormancy accounts with Companies House under the relevant rules.

Forgetting to tell HMRC can lead to Corporation Tax notices to deliver returns continuing to be issued. If the company fails to file, penalties can apply. Additionally, if the company owed tax, HMRC can pursue the company for payment. Directors can also face disqualification risks in serious non-compliance situations, and Companies House can take enforcement actions for late filings.

In short: with a limited company, “I stopped trading” is not the end of admin. You need to either maintain it correctly as dormant or close it properly through strike-off or liquidation as appropriate.

VAT: you can owe VAT admin even with zero sales

VAT is one of the most unforgiving areas for people who forget to tell HMRC they’ve stopped trading. If you’re VAT registered, you generally must keep submitting VAT returns until you deregister or your registration is cancelled. If you miss VAT returns, HMRC can issue assessments and penalties.

Even if you had no sales, you might still need to file “nil returns.” People often assume that because there’s nothing to pay, there’s nothing to do. In VAT world, “nothing happened” still needs to be reported if you’re registered.

There can also be a final VAT return when you deregister, and special rules can apply for stock and assets you still hold at deregistration. Depending on your situation, you might need to account for VAT on certain assets you keep. Forgetting to notify HMRC can mean you don’t complete the deregistration process correctly and then you’re stuck in the loop of expected returns.

PAYE and payroll: closing an employer scheme matters

If you employed staff (or paid yourself through a payroll as a director), you may have had an employer PAYE scheme. Stopping trading doesn’t automatically close that scheme. You often need to make a final submission, indicate it’s the final one, and close the scheme with HMRC.

If you don’t, HMRC may continue expecting Real Time Information (RTI) submissions. Depending on the circumstances, this can lead to notices and potential penalties. Even if you had no employees left, HMRC may assume you should still be reporting unless you formally close the scheme.

This is especially common for small companies where the only person on payroll was the director. If the company stops trading and the director stops taking salary, the PAYE scheme can be left open accidentally, generating admin headaches later.

Does forgetting count as “failure to notify” and can HMRC fine you for it?

HMRC has regimes that penalise certain failures, including failures to notify chargeability to tax or failures to notify changes when required. Whether you face a specific “failure to notify you stopped trading” penalty depends on the exact facts and what obligation applied to you.

In practice, most people encounter penalties through the filing system: you didn’t file a return that was due, so you were penalised for late filing. Or you paid late, so interest and late payment penalties applied. It often doesn’t present as a separate “you didn’t tell us you stopped” fine; it presents as the consequences of not closing down the obligations that remained active.

However, if HMRC believes you deliberately withheld information to avoid tax, the consequences can be more severe. That’s why it’s important to act as soon as you realise. Prompt disclosure and cooperation generally reduce the risk of HMRC viewing the issue as deliberate.

How to fix it quickly if you forgot

If you’ve realised you forgot to tell HMRC you stopped trading, the best approach is to tackle it in a clean, step-by-step way. You want to: (1) tell HMRC the cessation date, (2) file any outstanding returns, (3) pay any tax due or agree a payment arrangement if needed, and (4) close or update registrations like VAT or PAYE where relevant.

For a sole trader, this usually means updating your Self Assessment record so HMRC knows you’re no longer self-employed and ensuring your final return includes the cessation date. If you have overdue returns, file them as soon as possible even if the numbers are zero. Filing stops late filing penalties from continuing to rack up.

If penalties have already been issued, you can consider an appeal. Appeals work best when you can show a reasonable excuse and you acted promptly once the problem became apparent. Even if you don’t have a strong excuse, getting everything filed and up to date gives you a more stable foundation for discussing the matter with HMRC.

If you were VAT registered, you should look at whether you need to deregister and submit any missing VAT returns. The longer you wait, the more periods you may need to tidy up. For PAYE, closing the scheme and making any final submissions is typically the goal.

What if you stopped trading years ago?

This is where the situation can feel scary, but it’s still fixable. If you stopped trading several years ago and never told HMRC, you may have a backlog of returns or penalties. The priority is to establish what HMRC believes is outstanding. Sometimes HMRC will show multiple tax years as missing. Sometimes they’ll have issued estimated assessments. Sometimes penalties will have stacked up.

The practical approach is to gather the key facts: when you stopped trading, what income (if any) you had after that, and what records you still have. Even if your records are incomplete, you can often reconstruct a reasonable picture using bank statements, invoices, and platform records. The goal is to submit accurate returns where required and to correct HMRC’s assumptions.

If you were genuinely not trading and had no other taxable income requiring Self Assessment, you may be able to request that HMRC withdraw notices to file for certain years. But this is not something to rely on as a quick fix; HMRC will typically want clarity and may still require returns if notices were validly issued.

Where sums are large or the history is complex, it can be worth getting professional advice. Not because the situation is hopeless, but because an accountant or tax adviser can help you communicate with HMRC, negotiate time to pay, and frame penalty appeals effectively.

What if you stopped trading but still had a bit of income later?

Lots of people “stop” in a messy way. Maybe you stopped doing regular work but received a late payment from a client. Maybe you sold off some equipment. Maybe you got a refund, a rebate, or a final commission months later. That doesn’t necessarily mean you didn’t stop trading on the date you believe you did, but it does mean you need to treat certain receipts correctly in your final accounts and tax return.

There can also be income after cessation that relates to the business, such as debt recoveries or post-cessation receipts. Tax rules can treat some of these as taxable even if the trade has ceased. The main point isn’t to memorise every rule; it’s to avoid assuming “it doesn’t count because I stopped.” It often does count, and it should be reported properly.

Similarly, expenses after cessation can sometimes still be allowable if they relate to winding down the business (for example, professional fees to close accounts, or costs of collecting outstanding debts). The final return is where these details get captured. Forgetting to tell HMRC and delaying the final return makes it more likely you’ll miss these nuances and either overpay or underreport.

How to reduce or stop payments on account if you’ve stopped

Payments on account can be a nasty surprise after you’ve stopped trading. If your last tax bill was above certain thresholds, HMRC may ask you to pay in advance towards the next year’s bill. If you’ve stopped trading and your income has dropped, those payments might be too high.

If you forget to tell HMRC you stopped, you might keep getting asked for payments on account that don’t reflect your reality. In many cases you can apply to reduce payments on account, but doing so incorrectly can create its own problems if you reduce too far and later owe tax. That’s why it’s important to base reductions on a reasonable estimate.

Ultimately, filing your next return (even if it’s the final one) is what settles the position. If you’ve overpaid via payments on account, you may be due a repayment. But again, HMRC can’t repay what they can’t calculate, and they can’t calculate without the return.

Record keeping after you stop trading

Even after you stop trading, you generally still need to keep business records for a period of time. This matters because HMRC can ask questions later, and because you might need the records to support figures in your final return or to respond to HMRC queries about past years.

People often throw everything away the moment they stop working, especially if the business ended in frustration. That’s understandable, but it can backfire if HMRC later queries a return or if you need to reconstruct accounts to close the trade. Keeping digital copies of invoices, receipts, and bank statements is a sensible compromise.

Good records also help if you want to appeal penalties. Being able to show what happened, when you stopped, and what income you did or didn’t receive can make communications with HMRC smoother and less stressful.

What if HMRC says you owe tax but you don’t think you do?

If HMRC has issued an estimated assessment because you didn’t file, they may say you owe tax you don’t recognise. This can feel alarming, but it’s often a sign you need to file the missing return(s). Estimates are not a final truth; they’re often a placeholder designed to prompt action and protect HMRC’s position.

Filing the correct return usually replaces the estimate with the real calculation. If the real calculation shows no tax due, the balance should reduce accordingly. If the estimate has already triggered collection activity, engaging quickly is crucial to prevent enforcement steps based on incorrect numbers.

If you genuinely disagree after filing and correcting information, you may need to challenge the assessment formally or provide additional evidence. The best outcomes tend to come from focusing on clear, documented facts rather than arguing in general terms that it “seems wrong.” Dates, figures, and supporting documents are your strongest tools.

Could forgetting affect benefits, loans, or mortgages?

Indirectly, yes. Notifying HMRC and filing final returns affects your official income record. If you’re applying for a mortgage, a tenancy, a loan, or certain benefits, you may need proof of income and proof that your tax affairs are up to date. If you’ve left loose ends—outstanding returns, unresolved HMRC correspondence, or penalties—this can slow down applications or create awkward questions.

For sole traders, lenders often ask for SA302s or tax year overviews to confirm income. If you haven’t filed, you might not be able to produce what’s needed. If you’re trying to prove you no longer have self-employment income, having your HMRC records aligned with your reality can help avoid confusion.

This doesn’t mean forgetting to tell HMRC will automatically ruin your finances, but it can create friction at exactly the moment you want everything to be straightforward.

Common misconceptions that trip people up

One misconception is “I earned under the tax-free allowance, so I don’t need to tell anyone.” Your personal allowance and tax liability are separate from filing obligations. If HMRC expects a return, you still need to file or get the obligation removed. Another misconception is “I stopped trading, so HMRC will see my bank account is quiet.” HMRC doesn’t monitor your bank account in real time as a routine matter for this purpose, and in any case silence isn’t a notification.

People also believe “I’ll deal with it later when I feel like it.” The problem with that approach is that penalties and deadlines don’t pause for your stress levels. Admin has a way of compounding. A single missed deadline can turn into multiple years of missed returns if you disengage.

Finally, some people think “If I tell HMRC now, I’ll get in trouble.” In most everyday cases, telling HMRC is the step that stops things getting worse. It’s rarely the act of notifying that creates the problem; it’s the prolonged lack of compliance that does.

A realistic example of how forgetting can spiral

Imagine you’re a freelance designer. You stop taking clients in June and start a PAYE job in July. You assume the freelance chapter is closed and you don’t mention it. HMRC still expects a Self Assessment return for the tax year. You move house and miss the filing reminder. January passes and you don’t file, so you get a late filing penalty. Months later, more penalties accrue. The next tax year begins and HMRC issues another notice to file because your Self Assessment record is still open. You ignore that too because you’re busy and you think “I’m not self-employed anymore.” Now you have two years of outstanding returns and multiple penalties, even though you had no freelance income after June of the first year.

At some point you try to get a mortgage. The lender asks for your tax calculations from the last couple of years because you were self-employed. You can’t provide them because you didn’t file. You scramble to fix it, but you’re now doing it under pressure. This is a common pattern, and it’s avoidable: one simple notification and a final return would have closed the loop.

When it’s worth getting professional help

If your situation is simple—sole trader, no VAT, no employees—you can often resolve it yourself with careful steps. But there are situations where professional help can save money and stress: you have multiple years outstanding, you were VAT registered, you have large unpaid tax, HMRC has issued estimates you can’t reconcile, your records are incomplete, or you’re dealing with a limited company and dormancy/closure questions.

A tax professional can help you prioritise what to file first, prepare accounts correctly, and communicate with HMRC in a way that reduces confusion. They can also help with penalty appeals and negotiating time to pay if cashflow is tight. This isn’t about making things “go away”; it’s about handling the process efficiently and accurately.

How to avoid the problem in the future

If you’re about to stop trading, treat it like a checklist rather than a vague intention. Decide your cessation date. Save your records. Send your final invoices. Confirm which HMRC registrations you have: Self Assessment, VAT, PAYE, Corporation Tax. Then notify the relevant bodies and file what’s needed. Even a brief admin session can prevent years of annoyance.

It also helps to set a reminder for key deadlines after you stop. Many people stop trading mid-year and forget that the tax return deadline is still waiting at the end of the tax year. Putting a reminder in your calendar for the next filing date can make the difference between a tidy ending and a painful backlog.

The bottom line

If you forget to tell HMRC you’ve stopped trading, the most likely outcome is that HMRC continues to expect returns and payments as if you’re still active. That can lead to late filing penalties, interest, estimated tax bills, and repeated correspondence. The longer it goes on, the more complicated and stressful it can become—even if you owed little or no tax.

The good news is that the fix is usually straightforward: notify HMRC with your cessation date, submit any outstanding returns (including nil returns where relevant), settle any tax due, and close any registrations you no longer need such as VAT or PAYE. Acting promptly once you realise the mistake is the best way to limit penalties and restore a clean slate.

Stopping trading is a business event, and HMRC treats it that way. A quick, clear update can save you months—or years—of avoidable admin.