Frequently Asked Questions

​​On this page you will find answers to questions that may come up when dealing with your debts. The questions have been grouped into different headings to help you find what that you are looking for more quickly. The answers to the questions on this page contain links to more detailed information to help you​.​​​​​

Bailiffs

Can bailiffs take the tools I need for my business?

The type of debt you or your business owes will determine whether bailiffs are allowed to take your tools and equipment (known as tools of the trade) and things like stock. As a general rule, if you or your business owes tax or business rates, bailiffs can take tools of your trade. If you or your business owes commercial rent or money on an unpaid court judgment, any tools of the trade are protected up to the value of £1,350. Any bailiff is allowed to take a vehicle as long as it is parked at your home or business or on a public highway (the road). Any goods that are in manual use (and where taking them is likely to cause a breach of the peace) cannot be taken either.

Can bailiffs break into my home or business premises if I owe business rates?

When a bailiff collecting business rates first visits your home or business premises they are not allowed to break in. However, if you run a business that is open to the public it may be hard to stop them coming in. If a bailiff has not been in before, you should keep doors and windows locked. They are allowed to take a vehicle parked outside your home, outside your business premises, or on a public highway (the road). Try and keep vehicles in a locked garage otherwise they may be clamped.

What can I do if bailiffs are threatening to take goods they should not take?

The type of debt you or your business owes will determine what bailiffs can and can’t take. If you think exempt goods (goods that should not be taken) have been taken you can write to the bailiff with proof that they should not have been removed. The bailiff should tell the creditor this and then it is up to the creditor whether to accept the proof. If the creditor rejects the proof, you will need to make an application to court to resolve the issue. Bailiffs can still sell the goods in the meantime even if you have made this application to court.

Benefits

Can I get benefits if I am self-employed?

You can apply for certain benefits depending on your income from your business. You may qualify for means-tested benefits if you are on a low income. These benefits include Universal Credit, Tax Credits, Housing Benefit and Council Tax Benefit. There may be other benefits you can claim if you are disabled, such as Disability Living Allowance. If you have stopped trading you can also claim benefits, but as a self-employed person you may not have paid the right National Insurance contributions to claim contribution-based Jobseeker’s Allowance.

Budgeting for my business

Do I need to include my business costs when working out my budget?

It is very important to work out a budget if you have business or personal debts you are struggling to pay. To help you work out how much your business can pay you, if you are a sole trader or a partner in a partnership you will need to work out a business budget. Unless you include all of your business costs such as travel costs, telephone costs and tax, the amount you offer to your creditors will be more than you can actually afford.

How can I work out my income if it varies because I am self-employed?

Most people who are self-employed will have an income that varies from month to month. If this applies to you, add up your income for the last three months and divide this total by three to get an average monthly income. If your income is seasonal, use an average of the last 12 months. You should not use the figures from your last tax return to calculate your income, as these figures are often over 12 months old.

Business banking/lending

Can I deal with my business loan in the same way as my unsecured personal loans and credit cards?

If you have a bank account and a business loan with the same bank, they could take money out of the account to pay the loan if you miss a payment. If you can move your business banking to another bank, you can treat your business loan as a non-priority debt. This means you can negotiate with the bank in the same way as you would for any unsecured personal loans and credit cards. If you cannot move your business account somewhere else, you may have to treat your business loan as a priority and pay the contractual monthly instalments in full to avoid any action by the bank.

Do I need to open a safe business account?

You may need to open a safe business account if you are a sole trader or a partner in a partnership. A safe business account is an account with a bank you don’t owe any other money to. This means that they cannot take money out of your account to pay a debt to them. If you cannot pay your debts and you bank with the same bank you have debt with, it is wise to move your business account. Getting a business bank account elsewhere may be more difficult if you have already missed payments on debts because of the effect on your credit reference file. Some banks offer basic business accounts that you could apply for that don’t offer any credit facilities such as an overdraft.

What can I do if my bank has called in my business overdraft?

A bank can call in a business overdraft at any time. This means the full amount owing on the overdraft becomes due immediately. You may not have access to your business account going forward so you should open a safe business account with another bank. You also need to check whether the overdraft is secured or is part of an all monies charge as this could put your assets at risk. If it is unsecured it should normally be dealt with in the same way as an unsecured personal loan or credit card.

Where can I get business funding?

You can get advice from local enterprise agencies about access to finance. Search online for an enterprise agency near you. You can also search for business finance, support, grants and loans at GOV.UK. There is also the Enterprise Finance Guarantee (EFG) which you can apply for to invest in your business.

Do I have to have a business account if I have a limited company?

It is not a legal requirement to have a business account in the limited company name. However, it is strongly recommended that you do open one. It could be illegal under the Companies Act 2006 to hold limited company money in a personal account. It also makes it very difficult to separate the business and personal finances when completing tax returns for HMRC and accounts for Companies House. If you cannot open a business account you could try asking your accountant for recommendations. It is also worth shopping around the smaller business lenders. You can ask the Federation of Small Businesses for advice if you are a member.

Business leases

Is my landlord allowed to change the locks on my business premises if I have rent arrears?

If you do not pay your rent on time, your landlord can take physical possession of the premises by changing the locks when no-one is there. This is known as forfeiture. Your landlord does not need to send you written notice before they do this. In some cases you can apply to the court for ‘relief from forfeiture’ so that you can stay in your business premises. You need legal advice if you are going to make this application. Forfeiting the lease means that you are not liable for any ongoing rent and business rates payments.

Can my business landlord evict me from my business premises without giving me notice?

If you owe your business landlord rent, they do not need to give you any notice to evict you from your business premises. They can change your locks or apply to court to do this. If they apply to court you would normally get notice from the court. For most other breaches of your lease - for example, not insuring your premises properly - notice has to be given under section 146 of the Law of Property Act 1925.

Debt options for the self-employed

Can I go bankrupt if I am self-employed?

If you owe debt you can make yourself bankrupt. You should consider the effect on your business before you choose this option. If you are a sole trader, all business and personal debts are written off if you go bankrupt but you may find it difficult to continue trading. If you are a partner in a partnership, the partnership can go bankrupt. This means the partnership will close. Partners are personally liable for partnership debts so even after partnership bankruptcy, each partner will need to choose a personal debt option. You can choose to make all, or some, partners personally bankrupt at the same time as a partnership bankruptcy. If you are a director of a limited company you can apply to go personally bankrupt but this will mean you cannot continue as a director. Also, it will not close the company or deal with the company debts.

Can I still trade if I go bankrupt?

You cannot be a director of a limited company if you go personally bankrupt. You can trade as a sole trader or be a partner in a partnership. However it may be more difficult to keep trading. Any business assets could be taken and sold in your bankruptcy to pay creditors. It also affects your credit reference file for six years and this makes it hard to get a business bank account or any type of credit. If you change your trading name after bankruptcy, you have to make sure any customers or new creditors are aware that you went bankrupt.

Can Business Debtline help me if I only have personal debts?

If you are self-employed and only have personal debts it is still important to get help from Business Debtline. You will need to do a business budget to work out how much your business can afford to pay you each month. It will also help you determine whether your business is viable and where you may be able to increase business income or reduce business outgoings. A business budget will also help you work out your household budget so you can see what debt options you have.

Can Business Debtline help me if I have ceased trading?

If you have ceased trading you should still contact Business Debtline for help. You will be able to get advice about closing your business down in the right way and information about your options to deal with any business and personal debts you may have.

Debt recovery

How can I recover money I am owed?

How your business provides credit and collects money from its customers is called credit control. If another person or business owes your business money, you should write to them and ask for it to be paid within a set time period, for example seven days. If you are still not paid, send a final reminder asking for payment. You would then need to consider using a debt collection agency or starting court action to recover the money if you cannot come to an arrangement with your customer. You could also start bankruptcy action. Each option would cost you money to start it and you should consider the likelihood of getting this back along with the money owed.

Employees

What can I do if I owe an employee money for an employment tribunal award?

If you are told to pay compensation to an employee and pay in full within 14 days, you will not be charged any interest. If you cannot pay the amount owed all in one go, you can negotiate with the employee to pay by instalments. This needs to be an amount you can afford based on your budget. If your employee does not accept your offer, they can take the case to court. You can then offer the court instalments. If they refuse, further action can be taken to recover the money, including the use of bailiffs.

Landlords and commercial mortgages

Do I need to pay tax on income from a property that I rent out?

You may need to pay tax on rental income if you rent out a residential property. Income means any rent you receive minus ‘allowable expenses’ which are extra things you have had to pay such as buildings insurance and council tax. You must report income of more than £2,500 per year to HMRC on a Self Assessment tax return. This means you have to be registered as self-employed with them. If your income is less than £2,500 per year you still have to tell HMRC about this income but you may not have to pay tax or register as self-employed. The situation is different for commercial properties.

Have I been repossessed if receivers have taken over my commercial property?

If you have a commercial (including a buy-to-let) mortgage and you miss payments, the mortgage lender may ask receivers to deal with your property. The terms and conditions of commercial mortgages normally allow lenders to do this. This does not mean your property is repossessed. The receivers (sometimes known as Law of Property Act receivers) will collect the rent and pay the mortgage company directly. If they think it is the best outcome for the mortgage lender they will sell the property. If they do not do this, once the mortgage arrears and any fees are paid back, you can ask for the property to be handed back to you.

What can I do if I have missed payments on my commercial mortgage?

If you miss payments on your commercial mortgage (including buy-to-let mortgages) you need to contact your lender straight away. These arrears are a priority debt. The lender may have the right to hand your property to receivers, which means you lose control of what happens with the rent and whether the property is sold or not. They may also ask for repossession through the courts, and you do not have the same rights to suspend this as someone with a residential mortgage. You should try to pay your normal monthly payment and as much as you can towards any arrears. Make sure you complete a budget to work out what you can afford.

Liability

What can I do if the bank says I have signed a personal guarantee?

You would normally sign a personal guarantee if you are a director of a limited company. A personal guarantee means that if your company closes, you will still personally have to pay the debt back to the creditor yourself. Common examples of debts with a personal guarantee are business loans and overdrafts. If you do not pay, your business and personal assets could be at risk. You should check the agreement that you signed to see if you have given a personal guarantee. If you are unsure you should check the agreement with a solicitor.

Can a director ever be personally liable for the company debts?

If you are a director of a limited company you are not usually liable for company debts. This means if your company closes you do not have to pay back the debt personally. You can be liable for company debts if you have signed a personal guarantee. You can also be liable if you have committed an offence as a director. Directors' offences are usually investigated if your company is liquidated (goes bankrupt). Directors are always liable for their own income tax and National Insurance contributions.

Can money be taken from my business account to pay for my personal debts if I am a sole trader?

Money can be taken out of your business account to pay for personal debts if you have a business account and personal account with the same bank. This is called the right of set off. The accounts also need to be in the same name. Money cannot be taken out of a joint account to pay for a debt in just one name. It is a good idea to have your business account and personal account with different banks.

Limited companies

What can I do if I cannot afford to pay an insolvency practitioner (IP) to close my company?

If you have no money to pay an IP you can apply to Companies House to remove your company name from their register. This is called ‘strike off’. You must have stopped trading for three months before you can apply. There is a fee of £10 to make the application. Within one week of making your application to Companies House you must let other interested parties, such as creditors, aware. Companies House advertise the strike off for three months and as long as there are no objections will remove your company from the register after this time. This means your company is dissolved (closed) and no longer exists. Any money the company owes is written off, unless you have given a personal guarantee.

Can I strike off my limited company if the company owes any money?

You can apply to Companies House to strike off your limited company even if your company owes money to creditors. You must tell your creditors that you are going to strike off. If they don’t want you to strike off your company, they can object to this at Companies House. This will mean your strike off is delayed. Creditors may then choose to liquidate your company (make your company bankrupt). However, if no creditors object, Companies House will strike off your company and any money the company owes is written off, unless you have given a personal guarantee.

Can I strike off my limited company if there is a County Court claim in process?

If there is a County Court claim in progress (for example your company has a county court judgment) you can still apply to Companies House to strike off your limited company. There are, however, some court processes that will prevent you from applying for strike off. The most common is where a creditor has applied to liquidate your company (make it bankrupt).

What do I need to do if I want to close my limited company?

As a director you have a duty to close your company in the right way. If your company has assets, you should get advice from an insolvency practitioner (IP) about liquidation. This is where your company pays an IP to deal with the affairs of the company and then dissolve (close) it. If your company cannot afford an IP, you can apply to court to wind up (close) your company as this is usually cheaper. You should get legal advice before applying to court. If your company cannot afford to liquidate or wind up, you can apply to Companies House to strike off. There is a fee of £10 to make this application. If Companies House agree to take your company off their register, it will be dissolved.

Can a creditor apply to wind up (close) my company?

A creditor can apply to court to close your company if it owes £750 or more and cannot afford to pay. Creditors will usually prove that your company cannot pay its debts by sending a statutory demand. This is a formal demand for payment within 21 days. If you do not want your company to close, you need to pay the debt off or make a payment arrangement that the creditor is happy with. If you do not agree that the creditor can wind up your company (for example you dispute that the debt is owed), you can apply to the court for an injunction. You should get legal advice before you do this.

Do I have to have a business account if I have a limited company?

It is not a legal requirement to have a business account in the limited company name. However, it is strongly recommended that you do open one. It could be illegal under the Companies Act 2006 to hold limited company money in a personal account. It also makes it very difficult to separate the business and personal finances when completing tax returns for HMRC and accounts for Companies House. If you cannot open a business account you could try asking your accountant for recommendations. It is also worth shopping around the smaller business lenders. You can ask the Federation of Small Businesses for advice if you are a member.

Tax

Can I pay my VAT bill by instalments if I can’t afford to pay it all in one go?

You must be registered for VAT with HMRC when your business income is over a certain level. HMRC will tell you when to send them your VAT return and how often you should pay. VAT is a priority debt. If you can’t pay what they have asked, you will be charged a penalty. You can ask HMRC to accept instalments based on what your budget indicates you can afford. Even if HMRC refuse, start paying what you have offered and keep inviting them to accept your offer.

Do I have to complete a tax return if I have a small income or no income from my business?

Everyone who is self-employed must register with HMRC. You have to register with them by the 5th October following the tax year in which you started trading. The tax year runs from 6th April in one year to the 5th April in the following year. Even if you have little or no income from your business, you still need to show HMRC this by completing a tax return. If you don’t complete one, HMRC will charge you penalties. They will also estimate how much tax you owe. You are legally liable for this amount until you complete a tax return showing the correct amount you owe.

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