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Should I Continue Trading?

Sub pages : Should I Continue Trading? | Bankruptcy | Individual Voluntary Arrangement | Options For Limited Companies |

It may be clear from your budget sheet that you are trading at a loss, but this may be because of short-term cash difficulties.

Phone us for advice if you do not know whether you should continue trading.

If you delay too long before ceasing to trade in an unprofitable business, it may be more difficult to solve your problems.

There are a few things that you should do, if you decide to cease trading.

Tell HMRC (the tax office) that you have ceased to trade. They will require a completed tax return for the tax year in which you ceased trading, but this cannot normally be completed until the following 5th April. You should also review the 'payments on account' you are due to pay as you may need to ask them to be amended to reflect your cessation of trading. If you have been trading at a loss, this will be taken into account when your tax for the whole year is calculated.

If you already have an arrangement to pay your tax liability and your ability to maintain payment is affected by ceasing to trade, let HMRC know — don't simply stop making payments. Re-negotiate the arrangement based on your changed financial situation.

If you cannot afford to pay your accountant and so cannot provide final accounts, phone us for advice, or contact TaxAid.

Tell HMRC (VAT office) that you have ceased to trade. They will send a booklet containing a form for you to apply for de-registration and to send a final return. If you do not complete these forms, they will continue to send assessments, followed by enforcement of arrears. Remember, it is usually easier to make an arrangement for repayment of any VAT arrears after you have ceased trading.
Check your business lease. If it still has some years to run, it may be possible to assign (transfer) it to someone else. Your landlord's permission will be required for an assignment, and although it should not be unreasonably refused, you will usually have to pay the legal costs. Take care though — if the person to whom you assign the lease subsequently doesn't pay their rent, you may become liable again under the original lease agreement. If you cannot assign the lease, you will continue to be responsible for the rent for the remainder of the lease even if you have ceased trading. Tell your landlord you are ceasing to trade and see if he or she will accept surrender of the lease, if you cannot find anyone to take it over.
Tell the council that you are no longer trading from the premises. If you have a shop, there will be no business rates to pay for the empty property for three months, but you will have to pay 50% after that if nobody takes over the lease to the premises. There are no business rates to pay on empty factory or warehouse premises.
Remember to obtain final readings of gas and electricity meters and obtain final accounts for water and the telephone at your business premises. Arrears may be added to domestic accounts phone us for advice if this happens.
Tell the Contributions Agency you have ceased trading, as you will not be liable for Class 2 National Insurance Contributions (NICs).
Check your priority debts. Arrears of rent for the business premises and business fuel supplies may no longer be a priority, but tax, VAT and business rates must still be treated as priorities if you are to avoid distraint and/or bankruptcy. If your business trades as a limited company, inform Companies House in writing.
Paying creditors once you have ceased trading. Once you have ceased to trade you may find that your creditors will give you more time to pay. You could also consider making them lump sum payments as a 'full and final' settlement of the debt. However, such a settlement may not be legally binding unless by way of an individual voluntary arrangement, an administration order or supported by a 'deed of compromise' (a written agreement between you and your creditor, witnessed by a solicitor). The success of this type of strategy largely depends on your ability to negotiate directly with the creditors and convince them that such an approach gives them the greatest return, compared with, say, bankruptcy. It is important that all creditors are treated fairly no matter how much pressure they put on you.

If you cease trading, you should find out what benefits you are entitled to claim. If you are entitled to either Income Support or income-based Jobseeker's Allowance, you may be able to get assistance with your mortgage interest payments after a certain waiting period

If you took out your mortgage before 2 October 1995, the Department for Work and Pensions (DWP) will not pay anything towards your mortgage costs for the first eight weeks. They can pay up to half of your mortgage interest for the next 18 weeks and all of it thereafter if you are still unemployed.

For mortgages taken out after 2 October 1995 you will receive no help for the first 39 weeks, after which the DWP will pay your mortgage interest in full. The DWP will only pay interest payments for the actual purchase of your home, up to a maximum of the first £100,000 of your mortgage and at a rate determined by the government based on the Bank of England base rate. This maximum may be exceeded if any extra was used to adapt your home for someone with a disability. No interest will be paid on additional finance for other purposes, such as business loans.

Special Rules

If you or your partner are aged 60 or over, the Department for Work and Pensions will pay the interest in full immediately with no waiting time as part of your claim for Pension Credit.

You will be treated as an existing borrower and not have to wait the full nine months if:

you don't have to sign on because you are caring for someone who is sick;

you have had a mortgage protection insurance claim refused because of a pre-existing illness or HIV or AIDS related illness;
you are a pensioner on remand; or
you have a child living with you and you are claiming Income Support because your partner has died or has left you and is not providing any kind of financial support.

See our fact sheet on mortgage arrears for more information.

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