Can I claim tax back if I closed my business?

Closing a business can be a stressful and emotional decision, but it is important not to overlook the financial details. One common question from business owners is whether they can claim back any tax after ceasing trading.

The good news is that, in many cases, you can claim tax refunds if you have overpaid Income Tax, Corporation Tax, or VAT during your final trading period. The process depends on how your business was structured—sole trader, partnership, or limited company—and whether you still owe HMRC any outstanding liabilities.

This article explains when and how you can claim tax back after closing your business and what steps to take to finalise your tax affairs properly.

Claiming tax back as a sole trader

If you were self-employed as a sole trader, you can claim back overpaid Income Tax once you have submitted your final Self Assessment tax return.

When you close your business, you must:

1. Notify HMRC that you have stopped trading.

2. Submit a final Self Assessment return covering the period up to your closure date.

3. Include all outstanding business income, expenses, and capital allowances.

Once HMRC processes your return, it will calculate whether you have overpaid tax based on your profits and payments on account. If your final income was lower than expected, you might receive a refund.

You can also reclaim:

• Overpaid Class 2 and Class 4 National Insurance contributions.

• Tax on unused business expenses or losses carried forward.

Trading losses on closure

If your business made a loss in its final year, you might be able to claim terminal loss relief. This allows you to offset final-year losses against profits from the previous three years to reduce earlier tax bills. HMRC will then issue a refund for any tax you overpaid during those years.

To claim terminal loss relief, you must include the claim on your final Self Assessment tax return or submit it separately within four years of ceasing trading.

Claiming tax back as a partnership

If your business operated as a partnership, the process is similar to that of a sole trader. The partnership itself does not pay tax directly—each partner pays Income Tax on their share of profits through their own Self Assessment return.

When the partnership closes:

• The nominated partner must submit the final partnership tax return to HMRC.

• Each partner must file their own final tax return including their share of profit or loss.

If the partnership made a loss, each partner may be able to claim terminal loss relief on their portion of that loss. HMRC will then issue refunds to each individual where applicable.

Claiming tax back for a limited company

If your business was a limited company, the process involves Corporation Tax rather than Income Tax.

When you close your company (usually through a process called dissolution or liquidation), you must:

1. File your final Company Tax Return (CT600) with HMRC.

2. Pay any outstanding Corporation Tax due.

3. Inform HMRC that the company has ceased trading.

If the company overpaid Corporation Tax or has unused losses, it may be eligible for a Corporation Tax refund.

Steps to reclaim Corporation Tax

• Submit your final set of company accounts and tax return.

• HMRC will review and issue any refund directly to the company’s business bank account.

• If the company is in liquidation, the liquidator will handle the refund process and distribute any funds to shareholders after debts are paid.

Refunds can also arise if the company made payments on account during profitable years but reported lower profits in its final year.

VAT refunds after closing your business

If you were VAT registered, you can reclaim VAT you have overpaid or that remains due from HMRC after deregistering.

To do this:

• Submit your final VAT return showing all sales and purchases up to the date you stopped trading.

• Include any input VAT on expenses incurred before closing that you have not yet reclaimed.

• HMRC will process the return and issue any refund due.

You must keep VAT records for at least six years after deregistration, even if your business has closed.

PAYE and payroll refunds

If you had employees, you may be entitled to reclaim overpaid PAYE or National Insurance once you submit your final Full Payment Submission (FPS) and Employer Payment Summary (EPS).

You should:

• Run a final payroll showing the leaving date for all staff.

• Inform HMRC that the PAYE scheme is closing.

• Submit your final EPS with the cessation date.

If you have overpaid PAYE or NIC, HMRC will refund the balance once all submissions are processed.

Capital allowances and asset sales

When you close your business, selling business assets can create a balancing charge or allowance for tax purposes. If the value you receive is less than the tax written-down value, you may be entitled to a deduction that reduces your taxable profit.

Conversely, if you sell assets for more than their written-down value, you might have to pay tax on the difference.

Accountants can help you calculate these figures and determine whether any tax refund is due based on the disposal of assets.

Reclaiming tax on business losses

If your business incurred losses before closing, you might be able to reclaim tax through one of the following reliefs:

• Carry back losses: Offset losses against profits from the previous year.

• Carry forward losses: Use them against future profits (only applicable if the business continues in another form).

• Terminal loss relief: Available to sole traders and partners to offset final-year losses against profits from the previous three years.

These reliefs can result in a refund of previously paid tax, which HMRC will issue directly to your account.

Time limits for claiming tax back

HMRC sets strict deadlines for tax refund claims:

• Income Tax and National Insurance: Four years from the end of the tax year in which you stopped trading.

• Corporation Tax: Four years from the end of the accounting period.

• VAT: Four years from the date of the transaction or return.

Missing these deadlines could mean losing your right to claim, so it’s important to act promptly after closing your business.

Record keeping after closure

Even after ceasing trading, you must retain accounting records for a set period:

• Sole traders and partnerships: five years after the 31 January filing deadline of the final return.

• Limited companies: six years from the end of the last accounting period.

These records may be needed to support refund claims or in case of an HMRC review.

How accountants can help

Closing a business involves multiple tax calculations and reporting obligations. A qualified accountant can:

• Prepare and submit final tax returns.

• Identify overpayments and losses eligible for refund.

• Manage VAT and PAYE closure processes.

• Communicate with HMRC on your behalf.

• Ensure compliance with all deadlines and record-keeping requirements.

Professional advice ensures you recover any tax due while avoiding unexpected liabilities.

The bottom line

If you have closed your business, you may still be entitled to reclaim tax from HMRC. Whether you operated as a sole trader, partnership, or limited company, submitting accurate final returns and claiming available reliefs can lead to valuable refunds.

By reviewing your final year’s accounts carefully and seeking advice from an accountant, you can ensure your tax affairs are fully settled, any refunds are claimed, and your business closure is handled cleanly and compliantly.