This guide covers self-employment in general terms. It may not apply to your type of business.
Which business costs do I need to pay first?
Some are more important than others because of what can happen if you do not pay.
This list shows what can happen for different types of debt:
| Type of debt
|
What can happen if you do not pay
|
| Mortgage or secured borrowing on business premises
|
Losing your business premises
|
| Business rent arrears
|
Eviction or a visit from bailiffs
|
| Business rates
|
A visit from bailiffs or imprisonment
|
| Unpaid fines
|
A visit from bailiffs or imprisonment
|
| Tax, VAT or National Insurance
|
A visit from bailiffs, bankruptcy or imprisonment. But only in the case of evasion, fraud or other criminal action
|
| County court judgments
|
A visit from bailiffs or a charging order
|
| Equipment leases
|
Repossession
|
| Water, gas and electricity bills
|
Disconnection without a court order
|
Possible action from creditors to recover business debts
County Court action
The people you owe could get a County Court judgment (CCJ) against you.
- You will get some blue and white court forms through the post
- Fill these in and offer an affordable monthly repayment amount
- Wait for the response from the court and keep to what has been agreed
If you do not pay what was ordered by the court, the people you owe can:
- Use enforcement methods such as bailiffs (enforcement agents)
- Apply for a charging order to attach the debt to your property
- Get a Magistrates' court hearing
Read our guides to dealing with CCJs.
HMRC can take action against you without a court order.
Forced liquidation
There could be an application for this if your company is not able to pay what it owes to lenders, suppliers and others you owe money to.
Creditors can make this happen if the company cannot pay debts of £750 or more. The process is:
- You get a statutory demand from the people you owe
- A winding-up petition is filed and a court order drawn up
- The official receiver closes the business and sells assets to pay creditors
When you get a statutory demand you only have a short time to avoid the next steps being taken
So you should always respond as quickly as you can.
If you have personally guaranteed any business debts:
The people you owe could file to make you bankrupt. This does not apply to all types of self-employment.
Read our bankruptcy from creditors guide.
Debt solutions as a business owner
Following debt advice you may be recommended a debt solution. There are different types and you need to be clear about how you could be affected if you go ahead with one.
Insolvency solutions
These are things like bankruptcy, IVAs and trust deeds.
They are formal arrangements, managed by insolvency practitioners (IP), which means there are rules you must follow.
There are both personal and company insolvencies. In some cases you may need both, if your business must close and cannot pay its debts. This depends on the type of business would be explained by the IP. It does not apply to sole traders and those earning some self-employed income on the side.
This can offer you a fresh start, but while you are subject to the conditions, there can be a number of impacts on you. The rules depend on the type of insolvency. It will be explained to you before it begins.
- This will be recorded on a register that can be searched for
- Your credit file will record your insolvency, which can affect your access to credit in future
- Your finances are watched carefully. You may not be able to borrow any more and any deals you do will be checked, to make sure no rules have been broken
- You may not be able to be a company director or hold a position with similar financial responsibility with some solutions
- You may not be able to get a job in the law or banking
Read our guide to insolvency
Debt repayment solutions
These are things like debt management plans (DMPs) and the Debt Arrangement Scheme (DAS) in Scotland.
Some are informal, as DMPs are. That means you have an agreement with the people you owe, but there is no law governing it.
Some are formal, like DAS, which means you and the people you owe must keep to certain rules.
These can help you pay what you owe at a rate you can afford, but they can impact you if you use your personal income to support your business.
- You will be making lower payments while you are on your plan and these will be marked as partial payments on your credit file
- Your plan may not be directly recorded on your credit file, but the lower payments may mean it is harder for you to get credit. If you are sole trader this can make it much harder to run your business
What happens if I do not pay my tax, VAT or NI?
When you are self-employed you are responsible for paying your taxes. And for submitting a tax return each year even if your income is too low to pay any.
This applies to sole traders and business partners, as well as anyone earning through a ‘side gig’ on top of their usual earnings.
Limited companies and LLPs pay corporation tax. Directors of these companies can earn in different ways. It is important to check if your tax is being handled through the company or if you need to look after it.
Avoid further action by paying what you owe
They will want you to repay your debt as soon as possible.
- Contact the office you most recently heard from
- Explain your situation
- Try to set up an arrangement
They may let you pay in monthly instalments if they agree you cannot afford a lump sum. Share your budget to make arrangements to pay in instalments.
A number of ways to collect the debt can happen if you fail to pay what you owe.
Read more about dealing with HMRC debt