Business Debt Help for Sole Traders and Small Firms

Free business debt advice

Business Debtline is a free, independent service for self-employed people and small businesses, run by the Money Advice Trust. It offers phone advice, online tools and guidance on dealing with business debts. Other free services, such as StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, National DebtlineNational Debtline: How It Works, When to CallWhat National Debtline is, who runs it, what it can help with, how to get free advice by phone, webchat or online tools, and what to expect.Read more → and Citizens Advice, can also help, particularly if your personal debts are mixed up with business ones. Check each website for current contact details. Our overview of free debt advice in the UK lists the main services.

Your legal position matters

How you are set up decides who is responsible for the debts.

If you are a sole trader, your options are the same as for personal debt, including a debt management planDebt Management Plan (DMP)A Debt Management Plan is an informal arrangement to repay unsecured debts at a monthly rate you can afford. Learn how DMPs work, who they suit and what to consider.Read more →, an IVAIndividual Voluntary Arrangement (IVA)An IVA is a legally binding agreement to repay a portion of your debts over a fixed period. Understand how IVAs work, eligibility, costs and consequences.Read more →, a Debt Relief OrderDebt Relief Order (DRO)A Debt Relief Order is a formal solution for people with low income, low debt and few assets. Learn how DROs work, eligibility criteria and what happens to your debts.Read more → or bankruptcyBankruptcyBankruptcy is a legal process that writes off most debts when you cannot repay them. Understand how bankruptcy works in the UK, the consequences and alternatives.Read more →. See IVA for the self-employed. If you run a limited company, the company's options are different, and as a director you may have personal duties to creditors if the company is in difficulty, so take advice quickly.

Common business debts

• Tax and VAT: HMRC is often the largest creditor, and it can offer a payment arrangement. See HMRC tax arrears and Time to Pay.
• Supplier debts: Trade creditors usually respond to a realistic payment offer.
• Business loans and credit cards: Terms and rights depend on the type of lender.
• Rent and utilities: Commercial landlords have strong remedies, so deal with arrears early.
• Personal guarantees: If you guaranteed a company loan, you may be personally liable.

Steps to take straight away

1. Do not ignore it. Open every letter and keep records.
2. Get a clear picture. List what you owe, what is owed to you and your cash flow for the next few months.
3. Separate personal and business finances as far as you can.
4. Contact creditors early with a realistic offer. Many will agree a payment plan rather than lose a customer.
5. Take free advice from Business Debtline or another service before signing anything.
6. Keep trading carefully. Avoid taking new credit you cannot repay, and keep tax and VAT up to date.

Formal options

Depending on whether you are a sole trader or a company, the options can include:

• A time to pay arrangement with HMRC for tax debts
• An informal payment plan with creditors, perhaps with a reduced payment
• A debt management plan for sole traders. See debt management plans
• An IVA for sole traders with larger debts, which may allow you to keep trading. See IVA
• A company voluntary arrangement (CVA) for a limited company, which is a formal agreement with creditors similar in spirit to an IVA and run by an insolvency practitioner
• Administration, liquidation or striking off for companies that cannot continue, which are specialist processes where you need professional advice
• Bankruptcy for sole traders where there is no realistic way to repay

When to speak to an insolvency practitioner

Formal company processes, such as a CVA or liquidation, must be run by licensed insolvency practitioners. A first meeting is often free, but fees apply for the work, so compare options and ask for costs in writing. Get free advice first so that you know the questions to ask. The same warnings apply as for personal IVAs: be careful about cold calls, pressure and promises. See how to choose an IVA provider for the checks that apply.

Protecting your personal finances

Business problems often spill over into household budgets. Keep priority personal bills, such as rent or mortgage, council tax and energy, paid. Check whether you are entitled to support such as Universal Credit for the self-employed. See priority and non-priority debts and how to make a debt budget.

A worked example

A sole trader owes £4,000 to HMRC, £6,000 on a business credit card and £3,000 to a supplier, with about £350 a month spare after tax and living costs. A free adviser might suggest asking HMRC for a time to pay arrangement for the tax, offering the supplier a small monthly payment and contacting the card provider about a reduced rate. If the total is too much to manage, they might compare a debt management plan with an IVA for the self-employed. The right answer depends on income stability and whether the business is viable. The first step, though, is the same for everyone: write down the full list and talk to someone free.

Keeping the books in order

Whatever route you choose, tidy records make everything easier. Keep invoices, bank statements, tax returns and a cash flow forecast up to date. Separate business and personal accounts if you have not already. Good records show creditors you are serious and make it much easier for an adviser to find the best solution quickly.