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​.​​​​​

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.

Debt options for the self-employed

Can I go bankrupt if I am self-employed?

If you owe over £1,500 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 that you include in your bankruptcy are written off, but you may find it difficult to continue to trade. If you are a partner in a partnership you can petition for the partnership to go bankrupt, but each partner will have to petition for their own personal bankruptcy as well. 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, the bankruptcy will not deal with the company or 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. If you are a partner in a partnership and you go personally bankrupt, the whole partnership will have to be closed (dissolved). You can be a sole trader when you are personally bankrupt, but it may be more difficult to trade. This is because any business assets you had before the bankruptcy could be sold to pay your creditors. If also affects your credit reference file for six years and this makes it hard to get a business 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 I include my business debts in a Debt Arrangement Scheme (DAS)?

The Debt Arrangement Scheme (DAS) is a legal scheme run by the Scottish Government giving you time to pay off your debts over a reasonable length of time. Certain types of business, as well as individuals and couples, can use this scheme to deal with debts. The rules for a business DAS are different to those for an individual or a couple. Most business and personal debts can be included in a DAS. This includes any tax owed to Her Majesty’s Revenue & Customs (HMRC). The most common debts that cannot be included are child support arrears and any debt being directly collected from benefits. If you have hire-purchase or conditional-sale arrears, only the arrears will be included within your debt payment programme. Your creditor will still be able to take court action to repossess the goods if you do not pay the ongoing payments.

Can I do a trust deed if I am self-employed?

You cannot usually do a trust deed if you are a director of a limited company. If you are a sole trader or a partnership you can enter into a trust deed. Individual partners would also normally set up individual trust deeds at the same time. Business and personal debts would be included. You can carry on trading, but any business and personal assets could be sold to pay the creditors in your trust deed. Also, the trust deed would be recorded with credit reference agencies and the Register of Insolvencies for six years. This can make it more difficult to get business banking or credit facilities which may be essential to the running of your business.

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.

Landlords and commercial mortgages

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

You must register with the local council if you want to rent out a residential property in Scotland. 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’. These 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.

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

Can I strike off my limited company if there is a court claim in progress?

If there is court claim in progress (for example your company has a decree) 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).

Can a creditor apply to wind up (close) my limited 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 or make an arrangement to pay the debt 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 write to the court (‘lodge answers’) and explain your reasons. This has to be done within eight days of the winding up petition being served (delivered to your company in the correct way). You should get legal advice if you want to dispute the petition in this way.

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.

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.

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.

Sheriff officers

Can sheriff officers break into my home or business premises if I have business rates arrears?

If you owe the council business rates, they can apply to the sheriff court for a summary warrant. If the debt remains unpaid they can ask sheriff officers to attach your goods, which can then be taken and sold at auction. There are two types of attachment. An ‘attachment’ means that sheriff officers can take property outside your home. It also gives them to right to break into a garage or on outhouse and your business premises. An ‘exceptional attachment order ’ means that sheriff officers can break into your home, but this is used as a last resort.

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

There are certain things which sheriff officers cannot take. These include tools of the trade up to a value of £1,000 and a vehicle you reasonably require up to the value of £3,000. If a sheriff officer threatens to take, or takes something you think they shouldn’t, you may need to apply to court to challenge this. You will need to get advice before you do this.

Tax

What is the Scottish rate of Income Tax?

From 6th April 2016, if you live in Scotland, you will pay the Scottish rate of Income Tax. If you are self-employed there will be a box on your self assessment tax return form to let Her Majesty’s Revenue & Customs (HMRC) know you are a Scottish tax payer. As a Scottish tax payer you will pay the same amount of tax as people living in the rest of the UK, but 10% will go directly to the Scottish Government.

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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