A guide to returning from sole proprietor to employee: business closure procedures, taxes, and insurance, all organized
Quitting freelancing and taking a job — even this "reverse move" back from independence has a surprising number of procedures you must handle. There are five deadline-bound business closure notifications, and with social insurance there are parts you can leave to your employer and parts you must handle yourself or you will end up paying twice. And the tax return for the year you take the job is not finished by the year-end adjustment alone. This article organizes, in chronological order, everything from the procedures, taxes, and social insurance to the exit from mutual-aid schemes when you go from sole proprietor back to employee.
・The business closure notification to the tax office is due within one month of closure. Don't forget the notifications for withdrawing from blue-return filing, consumption tax, and the invoice system either
・Health insurance and employees' pension are handled by your employer when you join. However, only the withdrawal from National Health Insurance must be done by yourself within 14 days
・In the year you take the job, you have both salary and business income, so a tax return is required. There are also tax savings unique to the closure year, such as the "estimated deduction for enterprise tax"
The overall flow: the "to-do list" seen in chronological order
- Decide your closure date — pick a clean day (the day before you join, or the end of a month). It becomes the starting point for each notification's deadline
- File notifications with the tax office and prefectural tax office — submit the business closure notification and any others that apply (see the list in the next section)
- Joining: social insurance is enrolled via the company — the procedures for health insurance and employees' pension are carried out by your employer
- Withdrawal procedure for National Health Insurance — once you can use the company's insurance card (the qualification-confirmation document, or the qualification information of the My Number insurance card), withdraw yourself at your municipality
- Procedures for mutual-aid schemes and iDeCo — claiming benefits from the Small Enterprise Mutual Aid, changing your category for iDeCo, etc.
- The following February–March: your final tax return — combine salary income and business income and file
List of notifications to the tax office and prefecture
| Notification form | Where to file / deadline | Who |
|---|---|---|
| Notification of the opening or closure, etc. of an individual business (business closure notification) | To the tax office within one month of closure[National Tax Agency A1-5 (in Japanese)] | Everyone |
| Notification of discontinuing blue-return filing | To the tax office by March 15 of the following year | Those who filed blue returns |
| Notification of business discontinuance (consumption tax) | To the tax office promptly | Consumption-tax-paying (taxable) businesses |
| Notification requesting cancellation of registration as a qualified invoice issuer | To the tax office. If filed at least 15 days before the first day of the following taxable period, cancellation takes effect from the following taxable period[National Tax Agency D1-70 (in Japanese)] | Registered invoice issuers |
| Notification of abolition of a salary-paying office, etc. | To the tax office within one month | Those who paid salary to employees or dedicated family employees |
| Declaration of business discontinuance (individual enterprise tax) | To the prefectural tax office (within 10 days, etc.; varies by local government) | Those in a business category subject to individual enterprise tax |
* The business closure notification and the like can also be filed via e-Tax. There is no penalty for not filing, but because the tax office will keep sending filing inquiries and it becomes troublesome later, it is best to submit them all together.
Switching social insurance: the only thing you do yourself is "withdrawing from National Health Insurance"
When you take a job, the enrollment procedures for health insurance (the company's health insurance) and employees' pension are done by the company for you. The National Pension also switches automatically from a Category 1 to a Category 2 insured person, so in principle no procedure is required.
Even after you enroll in the company's health insurance, National Health Insurance is not withdrawn automatically. Aim to file the withdrawal notification yourself — at your municipality's counter or online — within 14 days of enrollment (you will need the qualification information of both the old and new insurance). If you forget, the National Health Insurance premium bills keep coming. Any overpayment is refunded later, but given the hassle, sooner is best.
Also, those who were in the National Pension Fund or the additional pension lose their qualification (because you are enrolling in the employees' pension). If you are putting a spouse into your dependents, file the dependent (change) notification via the company when you join. Please also check the conditions for health insurance dependents.
The final tax return: it isn't finished by the year-end adjustment alone
In the year you take the job, you have both business income from January to the closure date and salary income after you join. Since the company's year-end adjustment only processes the salary, you file a tax return yourself the following February–March and combine them (the ¥650,000 deduction of the blue return can also be used up to the final year if you meet the requirements).
① The "estimated deduction" for individual enterprise tax — without waiting for the enterprise tax you pay the following year, there is a special provision that lets you treat the estimated amount for the closure year as a necessary expense of that year (for those in a subject business category; as a set with the closure declaration to the prefectural tax office). ② Expenses paid after closure can also be recorded — expenses relating to the business that arise after closure, such as restoring an office to its original condition, can in some cases be treated as expenses under the "special provision for necessary expenses in the case of business discontinuance." ③ Those who made estimated tax prepayments can apply for a reduction — if your income falls due to closure, you can reduce the prepayment through a reduction application for estimated tax prepayment.
Take care if inventory or business assets remain. If you sell them, it is income, and product inventory diverted to personal use (household diversion) must be recorded as income as self-consumption. Turning depreciable assets such as a computer directly into personal belongings is not taxed, but you should tidy up the books (record the disposal or diversion).
The exit from mutual-aid schemes and iDeCo: for the Small Enterprise Mutual Aid, "business closure" is the sweetest
| Scheme | Treatment when returning to being an employee |
|---|---|
| Small Enterprise Mutual Aid | With business closure, you can receive it as "Mutual Aid Benefit A" (the most advantageous ground). A lump-sum receipt is treated as retirement income, so the tax burden is light. Since it is far more advantageous than voluntary cancellation (risk of falling below principal; treated as temporary income), always claim it under "business closure"[National Tax Agency (in Japanese)] |
| Business Safety Mutual Aid (Keiei Safety Kyosai) | You can receive a cancellation refund (100% of contributions at 40 months or more), but the cancellation refund is taxed as income. Note that the closure year is when your business income swells |
| iDeCo | No need to quit. Continue by filing a notification to change your insured-person category (the contribution ceiling changes depending on whether your workplace has a corporate pension). The discussion of the order of receipt is important in relation to future retirement benefits |
| National Health Insurance associations / voluntary mutual aid | Those who were in a National Health Insurance association such as the Literature and Art National Health Insurance should not forget the association's own withdrawal procedure |
There is also the option of "not closing the business" in the first place
If your company permits side businesses, one option is to keep the business going as a side business rather than closing it. You can retain your blue-return right and save the trouble of re-filing a business-opening notification. However, keep in mind that if the income scale becomes small it may be treated as miscellaneous income rather than business income (keeping books is the dividing line), and that a tax return is required if income other than salary exceeds ¥200,000 a year. For details, see Filing a tax return for a side job and How to think about side-job expenses.
Because sole proprietors are not enrolled in employment insurance, there is no unemployment benefit even if you close your business (any eligibility from your employee days has usually lapsed too). You need to budget the living costs of "closure → job hunting" out of your own pocket.
Summary
FAQ
What happens if I don't file the business closure notification?
There is no penalty, but the tax office treats your business as still ongoing, so filing notices keep coming and you incur the trouble of explaining your situation later. Since the rule is to submit it within one month of closure, it is best to file it together with the notification to discontinue blue-return filing and the like.
Is a tax return required for the year I take a job?
In principle, yes. You have both business income from January to the closure date and salary income after you join, and the company's year-end adjustment cannot process the business portion. You combine them and file a tax return the following February–March. The special deduction of the blue return can also be applied up to the final year if you meet the requirements.
Does National Health Insurance switch over automatically?
It does not. The company handles the procedure to enroll in the company's health insurance, but you must file the withdrawal from National Health Insurance with your municipality yourself (within 14 days as a guide). If you forget, the premium bills keep coming and you end up in a double-payment state (overpayment can be refunded).
What is the advantageous way to handle the Small Enterprise Mutual Aid?
Claiming it as "Mutual Aid Benefit A" on the ground of business closure is the most advantageous. A lump-sum receipt is treated as retirement income, so the tax burden is lighter. Voluntary cancellation may fall below principal depending on the contribution period and is also disadvantageous tax-wise, so always claim it as a mutual-aid benefit with proof of closure (such as a copy of the business closure notification) attached.
Can I keep it going as a side business without closing?
It is possible if your company permits side businesses, and you can retain your blue-return right. However, if income is small and there are no books it may be treated as miscellaneous income, and a tax return is required if income other than salary exceeds ¥200,000 a year. Don't forget to check your workplace's employment rules too.
Reference links (sources)
This article is based on the following official materials (as of July 2026). Please confirm the details and forms of each procedure with the respective official source.
- National Tax Agency A1-5 — Procedures for notification of the opening or closure of an individual business, etc. (in Japanese)
- National Tax Agency D1-70 — Procedure for the notification requesting cancellation of registration as a qualified invoice issuer (in Japanese)
- National Tax Agency — Income category of a lump sum under a Small Enterprise Mutual Aid contract (in Japanese)
- SMRJ — Small Enterprise Mutual Aid (in Japanese)
* This article is general information, not advice on tax or social-insurance procedures. For individual decisions, please confirm with a tax office, municipality, pension office, tax accountant, or the like.