If you don’t intend to keep a user’s data and want to free up a user spot, you can delete the user by going to Users (left menu) → Select user → Click on the dustbin icon on top.
This will delete all their asscociated time entries, comments, discussions, tasks, files, and milestones. So if you still need their data, it would be best to archive them.
NOTE: Please remember that once deleted, the data can’t be recovered.
If you don’t want to activate or add another user, you should go and change the subscription as well, to reflect the change by clicking on your name (bottom left corner) → Subscription and billing → Change subscription.