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Step 3Your priority debts

You’ve worked out your business and household income and outgoings (see Step 2). Now you need to work out which are the most important debts – the ones you need to start paying off first.

The rest of this section contains useful information about the following priority debts, including guidance on what to do and how much to pay.

Help with your priority debts

If you are unsure where to start, or need advice on your priority debts, you can webchat with one of our specialist advisers.

Our webchat service is available Monday to Friday, 9am to 8pm.

Checklist​

Use this simple checklist to make sure you take the right steps to deal with your priority debts.

Some debts are more important than others. These are called priority debts. It is important to use the money you have for your creditors to make agreements to settle these debts first. If you are not sure about how much to offer, contact us for advice.

  • Get some free, independent money advice: If you are reading this and haven’t yet spoken to a money adviser, contact us for advice about all your options.
  • Explain your situation to your creditors: Even if you haven’t decided how to deal with your priority debts, it’s a good idea to explain to your creditors that you are struggling. Tell them you are taking advice and doing a budget. This may get you some breathing space. Use our hold action sample letter.
  • Work out your budget: Your budget is very important as it will help you work out what you can afford to pay towards your priority debts.
  • Pay as much as you can: It is important that you pay as much as possible towards your priority debts. You will usually need to pay enough to cover your ongoing payments and offer a regular payment to reduce the arrears.
  • Has the creditor taken further action? Even if a creditor has said they will take further action, such as disconnecting your energy supply or repossessing your home, it is usually not too late to come to an arrangement and stop the action. Contact us for advice.
  • Can you increase your income? You may be entitled to benefits, tax credits or Universal Credit that you are not claiming, or there may be other ways of increasing your income.
  • Have you been treated unfairly? If you think you have been treated unfairly, you may have reason to complain. You may be able to complain to an ombudsman service, depending on what type of debt you are complaining about. You will usually have to complain to the creditor first. If you want more advice about who you can complain to, contact us for advice.

What are priority debts?

Some debts are more important than others. The law gives different creditors different ways of getting their money back.

If you don’t act quickly, some creditors could:

  • take away your business premises or your home (repossession or eviction);
  • cut off your gas or electricity (disconnection);
  • cut off the water supply to your business premises (disconnection);
  • send bailiffs to take belongings from your business premises or your home; or
  • ask the magistrates’ court to send you to prison.

It is important to use the money you have for your creditors to make agreements to settle these debts first. If you are not sure about how much to offer, contact us for advice.

Creditors can take action on some priority debts without going to court first. For example, gas and electricity companies can disconnect you if you have a meter outside your business premises or your home. Her Majesty’s Revenue & Customs (HMRC) can use bailiffs to collect income tax and VAT arrears without a court order. Most other priority creditors can only usually take action against you after court action.

Don't panic

You should be given warning and, as long as you act quickly, you should be able to stop these things happening.

You may have more than one priority debt. Some of these may be business debts, for example, rent arrears for your business premises. Some may be household debts, for example, council tax arrears. It is important to deal with all your priority debts. The first part of this step tells you how to deal with any priority business debts you have. The second part of this step tells you how to deal with any priority household debts you have.

Priority business debts

Below we tell you what might happen if you delay sorting out different priority business debts.

  • ​Business mortgage: ​Repossess your business premises.
  • Second business mortgage or secured business overdrafts and loans​:Repossess your business premises (or repossess your home if the debt is secured on your home).
  • ​Business rent or lease arrears: Evict you from your business premises. Use bailiffs. You may also still have to pay the arrears, which could result in court action for a money judgment.
  • ​Business rates​: Use bailiffs, bankruptcy or apply to the magistrates' court to send you to prison.
  • ​Business gas or electricity and water supplies: ​Cut off your supply.
  • ​Income tax, National Insurance and VAT arrears:​ Use bailiffs or bankruptcy.
  • ​Business hire purchase, conditional sale or equipment leases: ​Repossess the goods or apply for a court order to make you hand them back.
  • ​Major suppliers: ​Loss of supplies which could make your business fail.
  • ​Some business overdrafts and loans: ​You may need to maintain your bank account in order to carry on trading. This will depend on the needs of your business.
  • Accountants​: They could take a 'lien' (where they keep your books). This means, for example, you cannot access your figures for tax returns.

Priority household debts

Below we tell you what might happen if you delay sorting out different priority household debts.

  • Mortgage or secured loans and overdrafts:​​ Repossess your home.
  • Rent: Evict you from your home. Use of bailiffs. You may also still have to pay arrears, which could result in court action for a money judgment.
  • ​Council tax: ​Use bailiffs, deductions from your wages (if you are employed), deductions from some benefits, or you could be sent to prison (if you owe money to a council in England).
  • Gas or electricity: ​Cut off your supply.
  • ​Magistrates' court fines: ​Use bailiffs, deductions from your wages (if you are employed), deductions from some benefits, a clamping order, enforcement through the County Court or the High Court, or you could be sent to prison.
  • ​Child maintenance: This will depend on whether you pay maintenance through the court or, through the Child Support Agency (CSA) or the Child Maintenance Service (CMS). In some cases, you could have your passport, ID card or driving licence taken away or, if you deliberately refuse to pay, risk going to prison.
  • ​Benefit overpayments: ​Deductions from most types of benefits, Universal Credit and, in some cases, deductions from your wages (if you are employed) and court action.
  • ​Tax-credit overpayments: ​Deductions from your ongoing tax credits, Universal Credit, or through your tax payments, or court action.
  • ​Hire purchase or conditional sale (for household items): ​Repossess the goods or a court order to make you hand them back.
  • ​TV licence​: Use bailiffs, deductions from your wages, deductions from some benefits, a clamping order, enforcement through the County Court or the High Court, or you could be sent to prison.

Business mortgage

A lender’s powers are different depending on whether you take out a mortgage for your home or for business purposes, such as shop or office premises or a buy-to-let property.

Your mortgage lender may be more demanding if you took the mortgage out for business purposes.

The Law of Property Act 1925 (LPA 1925) applies to most business mortgages (for example, buy-to-let or commercial mortgages).

The Law of Property Act gives your mortgage lender the right to repossess the property or land without a court order. To do this your mortgage lender will need to appoint receivers (known as LPA receivers).

Always try to negotiate

Be open and honest with both the receivers and the mortgage lender. If you can show that the property can continue to be rented out to clear the debt rather than it being sold, you may avoid losing the property. Once you have cleared the debt (and paid back the receiver’s fees), the property may be handed back to you.

Getting your property back from the receivers

Even if you clear the debt in full, the receivers do not have to hand the property back to you. They can still put it up for sale. If you feel that the receivers are acting inappropriately, you may need to get legal advice to help you make a complaint. Contact us for advice.

Your mortgage lender can appoint LPA receivers if you fall behind with your mortgage payments. The receivers’ job is to recover the money you owe to the lender. They can do this by collecting the rent direct from the tenant (if this applies), selling the property or both.

Business rent

If you do not keep up your rent payments, your landlord can send a bailiff to your business premises to remove your stock and equipment without a court order.

It is important to let your landlord know if you are in difficulties and to come to an arrangement to pay off any arrears.

If you cannot make payments, your landlord could also change the locks on your business premises to stop you gaining entry. In some cases, the landlord may have to apply for a court order to evict you.

Any action your landlord takes will depend on your relationship with them and the length of any lease you may have. It is important to negotiate with your landlord as soon as you realise you are in financial difficulties. You can use Your budget to help you do this.

If you stop trading, you may still have to pay rent on your business premises. Check the terms of your lease. You may also have to pay business rates until the term of the lease has ended. Your landlord can still take court action to recover any rent arrears you might owe, even if you have stopped trading.

If you need more information about negotiating with your landlord, contact us for advice.

Changing locks and removing goods

Your landlord cannot change the locks on your business premises and remove goods at the same time. If your landlord has done this, they must give you the chance to come back to your business premises and take your goods. Contact us for advice.

Visit our Commercial property leases fact sheet for more information.

Business rates

The amount of business rates (sometimes called non- domestic rates) you have to pay for business premises is based on the rateable value, which is calculated during a valuation carried out by the district valuer.

Can I reduce my bill?

If you want to appeal against the rateable value, you should do this within six months of taking over the business premises.

It is a good idea to get professional advice from a specialist in this field if you are thinking about making an appeal. Phone your council’s valuation office for a list of reputable firms in your area and be very careful when dealing with firms who approach you first.

It may be possible to claim a range of different reliefs to reduce the amount you have to pay for business rates. You may even be able to ask the local authority to grant up to 100% relief. You have to demonstrate that you would suffer severe hardship if you had to pay business rates and that it is in the interests of other ratepayers for them to grant relief. The local authority will usually only grant 100% relief if you supply an important service to the local community, and only in extreme circumstances. For the range of different reliefs available, see www.gov.uk.

If you stop trading, but are still responsible for your business lease, you may still have to pay business rates.

Do not stop paying

You should not stop paying your business rates just because you feel that the valuation is wrong. You have to keep paying the set rate until the valuation is changed.

What happens if I don’t pay?

The council will usually tell you to pay your bill in 10 monthly instalments but they may also accept weekly payments.

You can also ask the council to let you pay your bill in 12 monthly instalments. If at any time you find that you can’t pay the full monthly instalment, don’t just stop paying!

  • Keep paying what you can afford.
  • Contact the council and try to come to an arrangement. Use Your budget to help explain your situation.

If you don’t keep to any payment arrangement you make with the council, they may apply to the magistrates’ court to make a ‘liability order’. This is the same process that is used to recover unpaid council tax.

Further action against you by the council

Once the council have got a liability order, there are a number of ways they can make you pay. This includes sending bailiffs to your business premises or home.

Even if they have a liability order, it is not too late to try to make an arrangement to pay. Contact the council as soon as possible if you have not paid or agreed a payment arrangement with them.

Other types of action the council may consider include bankruptcy. They may even apply to the magistrates’ court for an order that you be sent to prison. The court can only do this if you have refused to pay, or neglected to pay, even though you had the money to do so. If you are concerned about this type of action, contact us for advice.

Complaining

You may be able to complain to the Local Government and Social Care Ombudsman Ombudsman if the council have not behaved properly or if they have not followed the proper procedure. You will need to complain to your local council first.

Visit our Business rates fact sheet for more information.

​Business gas and electricity

Gas and electricity companies can cut off your supply in a few weeks if you don’t pay them, but they should only do this as a last resort. They must give you notice first.

How do I make a payment arrangement?

The energy supplier will usually want you to pay their bill before the next bill is due. You can ask to pay your bills every week, every two weeks or every month. If you have arrears, phone or write to the supplier and ask for a payment arrangement.

Use Your budget to support your offer of payment. This must cover the cost of the energy you are using and an amount to reduce the arrears. Even if the supplier does not agree to your offer, start paying what you have offered immediately. Do not offer to pay more than you can afford towards the arrears.

Ask if the supplier has a special department that deals with arrears and payment arrangements. If the first person you speak to is unhelpful, ask to speak to someone more senior.

What if I live at my business premises?

Your energy supplier may have to offer you a prepayment meter before disconnecting you if you live at your business premises. This depends on what type of contract you have with your energy supplier. You may pay more for your energy if you have a meter fitted but, once you have one, your supplier cannot disconnect you. Contact us for advice.

By law, your supplier must give you 7 days’ notice before they disconnect you. Contact Citizens Advice consumer helpline on 0808 223 1133 if you have been disconnected from your energy supply or threatened with disconnection, or your prepayment meter has stopped giving you energy.  If you are a pensioner, or you have long-term ill health, or you are disabled, you might get extra help to sort out your energy problems.

Complaints

If you complain to your energy supplier and you are not happy with their response, you can complain to the Ombudsman Services: Energy. They are an independent organisation that will investigate your complaint and make recommendations about how it should be sorted out.

Visit our Commercial energy debt fact sheet for more information.

Business water rates

Your water company can, as a last resort, cut off your supply to your business premises if you do not pay your bills.

However, if you are in financial difficulty, ask to pay your bills weekly, fortnightly or monthly to suit your budgeting.

If you have arrears, you will normally be expected to pay them before your supplier sends your next bill. Use Your budget to make arrangements to pay the arrears.

If you have arrears on your household water supply, your supply cannot be cut off. You should also not be cut off if you have just one supply for both household and business premises.

For mixed-use premises (where you use part of the premises for business use and part for household use) remember to say which bill the payment is for, and be careful not to get payment books for different years mixed up. You should not be cut off if you have only one supply for mixed-use premises.

For business premises, your water company will write to give you a date when your water will be cut off. Contact the company immediately and start paying the amount on your current bill plus an amount you can afford off the arrears.

Even at this stage, you will usually be able to make an arrangement to pay off the arrears.

If, at this stage, your water company asks you to pay more than you can afford, contact us for advice.

Household water supply

If you have arrears on your household water supply, your supply cannot be cut off. You should also not be cut off if you have just one supply for both household and business premises.

Risk of eviction

In extreme cases, the environmental risk of your business being without water could lead you to being evicted, whether you own or rent your business premises.

Complaining

OFWAT is the regulatory body for water. Their guidelines say that the company should take your circumstances into account when making an arrangement to pay. If you want to complain about your water company, contact your regional Consumer Council for Water (CCWater), which represents consumers of water and sewerage in England and Wales. They will look into your complaint about the water company. If you are unhappy about the result of your complaint after CCWater have dealt with it, you can make a complaint to the Water Redress Scheme (WATRS).  This scheme is free and gives you an independent decision which the water company has to follow.

Income tax

You must contact HMRC as soon as possible to arrange time to pay income tax arrears.

Make an offer to pay off the debt at a rate you can afford, and use Your budget to support your offer. Even if your offer is refused, start paying what you can afford, no matter how small the amount.

If you think your offer has been unfairly rejected, ask HMRC to review it under their complaints procedure.

If your tax return is late, HMRC will decide (‘determine’) how much you owe them. If your debt has been worked out in this way, you must send in your tax return as soon as possible. You should do this even if you think you may be too late. This may mean the debt is reduced and will also stop you being charged penalties for not sending in your tax return. You will be charged interest on any tax you are late paying.

HMRC will not accept an offer to pay arrears unless your returns are up to date. If you are having trouble putting in your tax return, for example, because you have lost your figures, or your accountant is holding on to your books because you have not paid their bill, contact us for advice.

HMRC can use a number of enforcement methods to recover an unpaid tax debt. These include the following.

Debt collection agencies

  • HMRC may pass your debt on to a debt collection agency. They are not bailiffs and have no rights to force entry to your business or home and take goods.
  • Use Your budget to make them an offer to pay by instalments based on what you can afford.

Bailiff action without a court order

  • HMRC does not need a court order to visit your business premises to take away your stock and equipment, up to the value of the debt. This is known as taking control of goods.
  • If there are not enough goods at your business premises to cover your debt, HMRC staff can go to your home and take goods from there (unless you trade as a limited company). If you refuse to let HMRC staff into your home or business, they could get a warrant to force entry, but this is rare. They are more likely to take you to the County Court for a money judgment or to start bankruptcy proceedings.

Deductions from bank accounts without a court order

  • If there is more than £5,000 in your account and you owe HMRC more than £1,000, they can take money out of your account to pay the debt. HMRC do not need a court order to do this.
  • They can do this after 30 days of sending you the letter telling you how much income tax is owed. However, they are more likely to do this if you are persistently late paying your income tax bill, or if they find it difficult to get in contact with you.

Types of tax

HMRC have the power to take money out of your bank account for any type of debt owed. This includes income tax, VAT and National Insurance contributions.

County Court action

  • HMRC can apply to the County Court for a money judgment. If you do not make the payments the court has ordered, HMRC can take further action against you.
  • This includes a charging order where any properties you own are used as security for the debt, taking money from your bank account and taking money from your wages if you are employed.

Bankruptcy

HMRC can apply to make you bankrupt if the debt is for £5,000 or more. This is more likely if you owe tax from a number of years, or if you agree a repayment offer and then do not pay. They will look at making you bankrupt even if you have no assets, and you will usually have to stop trading.

Visit our Income tax debt fact sheet for more information.

VAT

  • As with income tax, HMRC can take action to collect VAT arrears without a court order and can take away stock and equipment from your business premises. If there is not enough stock and equipment to cover the arrears they can visit your home address and take away goods (unless the debt is owed by a limited company).
  • You will usually have to pay any VAT arrears in full before the next VAT return is due. Late payment penalties will be added to the bill from the time it becomes overdue.
  • The VAT officer will usually look at your past record of VAT payments before deciding what payments to
    accept. So start paying what you can afford immediately, no matter how small the amount.
  • If the arrears are based on an estimated assessment, you must send in an accurate return, which could reduce the bill. Even if you cannot pay, you may avoid a penalty for not making a VAT return.
  • If HMRC cannot recover the money you owe by taking away your goods, they will usually apply for a bankruptcy order.
  • They can only do this if you owe them £5,000 or more. It is important to let HMRC know if you stop trading, and you should apply to deregister for VAT if your turnover is less than the deregistration limit shown on our Tax allowances and amount fact sheet. It is then often easier to come to an arrangement to pay off your VAT arrears by instalments. Contact us for advice.

Visit our VAT debt fact sheet for more information.

National Insurance

There are four classes of National Insurance contributions (NICs).

  • Class 1 NICs are deducted from an employee’s wages and paid by the employer, along with income tax, under PAYE.
  • Class 2 NICs are paid at a flat weekly rate by self-employed people.
  • Class 3 NICs are voluntary contributions paid to help people qualify for retirement pension and certain benefits.
  • Class 4 NICs are paid by self-employed people on top of Class 2 NICs if earnings are above a certain threshold.

Class 1 and Class 4 NICs are collected by HMRC in the same way as income tax arrears.

From 6 April 2015 most self-employed people's class 2 NICs will be calculated when they send in their self-assessment tax return. The amount owed is also collected by HMRC.

Business hire purchase or conditional sale

You can buy goods on different types of credit agreements. With most credit, you own the goods straight away and only owe the money to the creditor. The creditor cannot ask you to return goods you bought with most types of credit. However, with hire purchase and conditional sale agreements, you do not own the goods until you have paid the last instalment. The most common type of goods bought on hire purchase agreements are cars.

What kind of agreement do you have?

If you have a hire purchase or conditional sale type of credit agreement, it should state this clearly. This information only covers hire purchase and conditional sale agreements which come under the Consumer Credit Act 1974. Your agreement will not come under the Consumer Credit Act if it was taken out by a limited company. If you are not sure what type of agreement you have, check your agreement or contact us for advice.

Can my lender take back the goods?

If you fall behind with your payments, the lender may be able to ask you to return the goods and then sell them to reduce the debt. You cannot sell the goods yourself without the lender’s permission.

Have you paid less than a third of the debt?

If you fall behind with payments, the lender may be able to repossess the goods. They do not usually need to go to court first if you have paid less than a third of the debt. However, they may have to go to court if you keep the goods inside your home or business.

You may be able to return the goods. See Returning the goods voluntarily below.

Have you paid off more than a third of the debt?

If you have paid off more than one third of the total owing, the creditor must go to court to ask you to return the goods. They cannot just come round and remove them.

Returning the goods voluntarily

You may be able to return the goods by writing to your lender to end your agreement. This is only possible if your lender has not already ended your agreement. You will owe up to half the agreement amount, any arrears and reasonable charges if the goods are damaged. If you have already paid half of the payments under the agreement, you will not usually be asked to pay anything more. Once you have returned the goods, you can treat any debt you still owe as a non-priority debt.

Keeping the goods

If it is important to you to keep the goods, you may want to treat this as a priority debt. If you do this, be prepared to explain to your creditors why you need the goods (for example, you need the car for your business or you live in a rural area with very limited transport).

If your lender will not agree to this, you may be able to apply to the County Court for a ‘time order’. If this is granted, you may be able to keep your goods and make smaller reduced payments to your lender. Contact us for advice.

What if my lender takes court action?

If your lender has taken court action, you may not have to return the goods as long as you agree to make the payments that the court decides. You can ask the court to allow you to pay less than your normal payments on the agreement if you can show that this is all you can afford to pay.

Get help

The law about hire purchase and conditional sale agreements is fairly complicated. If you are behind with payments on this type of agreement, contact us for advice.

Visit our Time orders on hire purchase fact sheet for more information.

Business equipment leases

As with hire purchase, equipment leases may be a priority or a non-priority debt. Most of your rights are set out in the terms and conditions of your agreement. They will help you decide whether to treat the lease as a priority or a non-priority debt.

Check your agreement very carefully to see whether you have the right to keep the equipment at the end of the lease. Some leases also state that you have to pay for the whole lease, whether you keep the equipment or not. Check whether the debt will be reduced if you return the equipment.

Your agreement should also tell you what the lease company needs to do to get their equipment back if you do not pay.

If you do have the right to keep the equipment, or if the equipment is essential to keep your business running, any arrears should be treated as a priority debt. Use Your budget to make an offer of payment you can afford.

Selling your equipment

It can be a criminal offence to sell leased equipment without first getting the leasing company's permission. Contact us for advice.

If the equipment is not essential to running your business, you can treat it as a non-priority debt. Contact us for advice.

Major suppliers

If you cannot get supplies from any other source, you may have to treat a trade supplier as a priority creditor. If you can use another supplier, you may be able to treat a supplier as a non-priority debt.

However, if you owe suppliers £5,000 or more they may threaten to make you bankrupt. If you are not sure how to treat your supplier debt, contact us for advice.

Business overdrafts and loans

If your bank account regularly goes over any arranged business overdraft limit, interest and charges will be added to what you owe. You also run the risk of having the overdraft limit cancelled or not renewed when the agreement runs out. This can also happen if the bank suspects you are in financial difficulty, for example, if they see less money coming into the account than normal.

If you lose control of your business bank account, it can be very difficult to manage your business and household finances. Unpaid cheques, direct debits and standing orders will make your debts worse. The bank may use money you pay into your bank account to pay interest and bank charges rather than to cover the payments you need to make.

You may find it easier to convert your overdraft into a loan. However, remember that you will lose the flexibility of the overdraft because your bank will only usually let you run your bank account in credit from now on. You will also have to make a monthly repayment on the loan. Make sure you can afford this. Also, check that the interest rate on a loan is no higher than your overdraft rate. Use your business and household budget sheet to show the bank you can afford the repayment.

If you cannot meet your current loan repayments or are in danger of going over your overdraft limit, speak to your bank and try to come to an arrangement. For example, the bank may let you pay back what you owe over a longer period. If you are able to, it is generally easier to deal directly with your own branch than with a central debt-recovery unit. If you are able to reduce the balance to within the overdraft limit, this may reduce borrowing charges.

If the bank threatens to close your account or refer it to a debt-recovery unit, contact us for advice.

Security for business debts

If your bank asks you to provide security for an unsecured loan or overdraft (for example, your property), contact us for advice. Always check the interest rate and any arrangement fees that will be charged. If you miss payments on a secured loan, your property will be at risk.

Secured or unsecured?

Bank overdrafts and loans may be secured or unsecured.

Secured

This is where the bank has security over some or all of your business assets. In some cases, they may also have security over personal assets such as a family home. A secured loan or overdraft must be treated as a priority debt. You do not have the same rights as someone with a personal debt, like mortgage arrears, if the lender threatens you with repossession.

All monies charge

This is a clause in one of your agreements that gives the bank security for all of the debts you have with that bank. It means that any borrowing with that bank in the past, now, and in the future will be secured. All monies charges must be treated as a priority debt. You do not have the same rights as someone with a personal debt, like mortgage arrears, if the lender threatens you with repossession. Contact us for advice.

Unsecured

Loans and overdrafts are unsecured if the lender does not have any security. However, depending on the circumstances, you may need to treat these as priority debts if you feel that you cannot get a banking service elsewhere and it is essential for keeping your business running.

If the bank threatens to stop cheques and put restrictions on your account, contact us for advice.

Limited companies

If you are a director of a limited company, you may have signed a personal guarantee that may be supported by a security over your home. This must also be treated as a priority debt.

Negotiating with your bank

If you are facing debt and cashflow problems, it is essential that you speak to your bank. If possible, make an appointment to see them. There are a number of options that you could think about putting to the bank. These will depend on your business plan.

Business plans

Your business plan is not just for the bank, it is mainly for your peace of mind. It should show you how you can trade out of your difficulties and improve your business performance. The proposals you put forward, and the bank’s response, will depend on your circumstances. Contact us for advice.

Your local enterprise agency may be able to help you prepare a business plan – contact your local Chamber of Commerce for details of what’s available in your area.

Should I consider changing my bank?

This is not an easy question to answer. It is often better to stay with your current bank. This is because they know you and are more likely to listen to your problems and help you. However, in some situations, it may be appropriate to change banks. For example, it may be better to open an account at another bank if:

  • your own bank will not listen to your proposals;
  • you are finding it difficult to manage your banking; and
  • the debts you have with your current bank are unsecured.

However, if you have a poor credit history, you may find it difficult to open another bank account.

Make sure you keep your new account in credit to avoid running up another debt and making your problems worse.

If you are able to open a new account, treat any unsecured debts with your old bank as non-priority debts.

Remember to treat any secured debts with your old bank as priority debts.

Always try to negotiate

Always try to come to an arrangement with your existing bank before moving your account. If you are in doubt, or you would like more information about business bank accounts, contact us for advice.

Accountants

If you have not paid your accountant, they may refuse to return your books until your bill is paid. This is known as a ‘lien’. It means that the accountant has the right to keep the books they have worked on if you have not paid their fees in full. However, they should return any of your materials used to create the books such as invoices, bank statements and so on.

You may need to treat your accountant’s bill as a priority if you need your books for things such as HMRC returns. This is because if you do not send HMRC returns off on time, HMRC can add penalties to what you owe.

Contact your accountant and explain that you cannot pay. Explain that having your books back will help you put together a repayment plan, which should mean you can make a better payment offer to them. This is particularly important if you have to deal with income tax or VAT assessments, as sending these in may mean you get a refund.

Legal action

You could take legal action to get your books back. However, it is important to get a solicitor’s opinion about this first. Contact us for advice about how to find a solicitor that may be able to help you.

Limited companies

The rules about what an accountant can hold in lien are different if the books are for your limited company. If you accountant is refusing to return any documents relating to your limited company, contact us for advice.

Household mortgage

Mortgage arrears are very important because you could lose your home if you do not pay them. They must be treated as a priority debt.

Check all your loan agreements to see if they are ‘unsecured’ or ‘secured’ on your home. If they are secured loans, treat them as priority debts because lenders can go to court to repossess your home if you cannot pay your monthly instalments. They can then sell your property to pay off your debt.

Has your lender taken you to court?

You cannot be evicted from your home without a court order. You will not be evicted on the day of the hearing.

Before a lender can take court action to repossess your home, they should follow the steps set out in the pre-action protocol for mortgage possession claims. Lenders should consider all options before taking steps to repossess your home. Courts should take into account the pre-action protocol when deciding what order to make.

Dealing with mortgage or secured loan arrears

It’s never too early, or too late, to contact your lender. You may not be behind yet or your lender may have started court action. Whatever the situation, do not delay. Contact your lender as soon as possible by writing, phoning or making an appointment to see them. It is important that you pay as much as possible towards your mortgage or secured loan. If you have not paid anything for a while, you should start regularly paying what you can, even if you can’t afford the full monthly payment.

There may be benefits, tax credits or Universal Credit that you are not claiming or other ways of increasing your income. If you receive certain benefits, you can get help from the Department of Work and Pensions (DWP) with some of the interest payments on your mortgage. This is a loan and not a benefit. Check if you have any mortgage payment protection insurance that you can claim.

Have you been treated fairly?

If you think you have been treated unfairly, you may have reason to complain. You can complain to the Financial Ombudsman Service but you must complain to your lender first.

Visit our Mortgage arrears fact sheet and Homelessness advice fact sheet for more information.

Household rent

Rent arrears are very important because you could lose your home if you do not pay them off.

Your right to stay in your home depends on the type of tenancy you have. Each type gives different rights. So it’s important for you to find out what type of tenancy you have. If you are not sure, contact Shelter or your local citizens advice bureau.

Your situation could be made more complicated if you use your premises for both business and household use. In this case, you may only have a business lease covering the whole of the property, which means you might not have the same rights as a domestic (household) tenant.

This information does not apply to eviction in England due to immigration status. Contact us for advice.

You cannot be evicted from your home without a court order. Even if you are taken to court, this does not always mean you will automatically lose your home. Keep paying your rent and make an offer to pay off the arrears. Even if the court decides you cannot afford to stay there, you will not be evicted from your home on the day of the hearing. There are special rules for some types of tenancy.

Before a social landlord (such as a local council or a housing association) can take court action to evict you from your home, they should follow the pre-action protocol for possession by social landlords. Courts should take the protocol into account before deciding what order to make.

Dealing with rent arrears

It is never too early, or too late, to come to an arrangement to repay your arrears. You may not be behind with your payments yet or your landlord may have already started court action. Whatever the situation, don’t delay. Contact your landlord as soon as possible by writing to them, phoning them or making an appointment to see them.

Make sure your rent arrears have been worked out properly. Get a breakdown of your rent account from your landlord. Check that all the payments you have made have been added to your account. Ask for regular statements. Keep your receipts. Check you are getting any Housing Benefit or Universal Credit that you are able to claim.

If you have made an offer to pay the arrears, start paying this as soon as possible, even if your landlord has not accepted the offer. You also need to pay your normal rent. If you haven’t paid for a while, pay as much as you can.

Have you been treated fairly?

If you think you have been treated unfairly, complain to your landlord. If you are still not happy, you can complain to the Housing Ombudsman Service (if you are a housing-association tenant) or the Local Government and Social Care Ombudsman (if you are a council tenant). If you have a private landlord, contact us for advice.

​Council tax

The amount of council tax you pay is based on:

  • the value of your home (homes are placed in a band – A to H in England and A to I in Wales);
  • the number of adults who live in your home and their status; and
  • the amount of Council Tax Reduction that you get from your local council.

Who pays what?

Only people over 18 can be made to pay the bill. If there is more than one person over 18 living in your home, the owner will normally have to pay the bill if they live in the home. Joint tenants and owners may have to pay, even
if their names are not on the bill, as long as the council sends them a ‘joint taxpayers notice’.

If you are either married, live with your partner, or live together in a same-sex civil partnership, both you and your partner will be responsible for paying the bill.

Sometimes the owner of a house will be responsible for the bill even if they don’t live there, for example, if the house is unoccupied, or in ‘multiple occupation’ such as bedsits. If you are not sure who is responsible for the bill, contact us for advice.

Can I reduce my bill?

You may get a reduction if someone living in the house has a disability. Apply to the council for this. Only some properties will qualify. Contact a local welfare rights agency or contact us for advice.

You will also get a discount in the following circumstances.

  • If you are the only adult in the house.
  • Or, if you share your house only with people who are not taken into account, such as:

- a full-time student or student nurse;

- an apprentice or someone on a youth-training scheme (only certain ones apply); or

- someone with a mental disability who is getting certain disability benefits.

Tell the council if you think you may qualify for a discount. Check how this works with your local council.

You may be able to claim a rebate called ‘Second Adult Rebate’. Check how this works with your local council.

What happens if I don’t pay?

The council will usually tell you to pay your bill in 10 monthly instalments but they may accept weekly payments. You can ask the council to let you pay your bill in 12 monthly instalments. If you find that you can’t pay the full monthly instalment, don’t just stop paying!

  • If your circumstances have changed, you may now qualify for help with paying your council tax bill from your local council. Contact us for advice.
  • Keep paying what you can afford.
  • Contact the council and try to come to an arrangement. Use Your budget to help explain your situation.

If you don’t keep to any payment arrangement you make with the council, they may apply to the magistrates’ court to make a ‘liability order’ for the full amount they say you owe, plus court costs. The order will state that you are due to pay your council tax and have not done so.

Further action against you by the council

Once the council has got a liability order, there are a number of ways they can make you pay. Even if they have a liability order, it is not too late to try to make an arrangement to pay. Contact the council as soon as possible if you have not paid or come to a payment arrangement.

The council can take the following action to make you pay.

  • The council can order your employer to take a fixed amount from your wages to pay the council tax you owe. It is called an ‘attachment of earnings order’.
  • Bailiffs can visit your business premises or your home to try and remove goods.
  • If you claim certain benefits, you or the council can ask the Department for Work and Pensions (DWP) to take a set amount each week.
  • The council can apply to secure the debt on any property you own. This is called a charging order. You could lose the property if you do not pay the debt. They can only apply for a charging order if you owe more than £1,000.
  • If you owe council tax to a council in England, the council can ask for an order to send you to prison if they think you have refused to pay, or had the money and neglected to pay. It is unlikely you will be sent to prison if you did not have enough money to pay.

Complaining

You may be able to complain to the Local Government and Social Care Ombudsman if the council have not behaved properly or not followed the proper procedure. You will need to complain to your local council first.

Visit our Rent arrears fact sheet for more information.

Household gas and electricity

Gas and electricity companies can cut off your supply in a few weeks if you don’t pay them, but they should only do this as a last resort. They must give you notice first. They cannot cut off your supply unless they have first offered you a range of payment methods to help you pay. It is important to contact them as soon as you know you are going to have problems. You should treat gas and electricity bills as a priority debt.

How do I make an arrangement?

The energy supplier will usually want their bill paid before the next bill is due. You can ask to pay your bills every week, every two weeks, or every month. If you have arrears, contact the supplier and ask for a payment arrangement.

Use Your budget to support your offer of payment. This must cover the cost of the energy you are using and an amount off the arrears. Even if the supplier does not agree to your offer, start paying what you have offered immediately. Do not offer to pay more than you can afford towards the arrears. All energy suppliers should agree, under their standard licence conditions, to accept an offer of repayment in instalments at a rate that you can afford.

If the first person you speak to is unhelpful, ask to speak to someone more senior.

Ask the supplier for a copy of their code of practice. This explains your rights and how to make a payment arrangement.

Most energy suppliers will not disconnect you if:

  • you agree to a payment arrangement;
  • you agree to have a pre-payment meter installed;
  • the debt belongs to a person who lived in your home before you; or
  • it is between October and March and all the adults in the household are over retirement age.

Under the Energy UK Vulnerability Commitment, member companies will not knowingly disconnect you if:

  • you are vulnerable;
  • your household has children under the age of 6 (or under the age of 16 during 1 October to 31 March); or
  • you cannot safeguard your personal welfare or the personal welfare of other members of the household due to age, health, disability or severe financial insecurity.

Ofgem guidelines

Ofgem is the regulatory organisation for gas and electricity. Energy suppliers must keep to Ofgem's guidelines, which say they should take your circumstances into account when making an arrangement to pay.

Prepayment meters

If it is safe to install a prepayment meter, your supplier must ask you if you want one before your supply is cut off. If you have not fallen behind on an arrears repayment arrangement, the energy supplier cannot insist that you have a prepayment meter installed. But you can still ask for a prepayment meter if you want one.

The supplier still wants to cut my fuel off

If you are threatened with being cut off, contact the social services department of your local council or the DWP for help. The fuel supplier will delay cutting you off if they are told the social services or Department of Work and Pensions (DWP) are looking into your case. They will usually hold action for 10 working days but may agree to delay longer. This could give you time to make an arrangement to pay. The Children’s Act 1989 gives social services the power to make payments in certain circumstances to families with children.

You should contact the Citizens Advice consumer helpline if you are threatened with being cut off or have been disconnected.

If you already have a prepayment meter

If you can’t afford to top up your prepayment meter and are at risk of running out of credit or have already done so, contact your supplier. Explain your situation and ask for extra credit to keep you going. Under their licence conditions, your supplier is required to provide emergency credit if you are unable to top up your prepayment meter.

If you are vulnerable, your supplier may also offer you further credit if they become aware you are self-rationing or have self-rationed. This is where you limit your energy usage or you reduce spending on other goods or services so that you keep can your supply on. Contact your supplier if you need this support.

Help to pay your bill

Some fuel companies have set up trust funds that may be able to help you pay your fuel bills if you are in financial difficulties. Get information about trust funds and support schemes you can apply to for financial help by going to the Auriga Services website www.aurigaservices.co.uk. Click on the link to the Help with Water & Energy booklet at the top of the page. If your supplier does not have a trust fund, you can apply to the British Gas Energy Trust for help, even if you are not a consumer of British Gas.

Complaining about your energy supplier

All suppliers should follow a code of practice when dealing with people in arrears. You can complain to Ombudsman Services: Energy about a billing or transfer problem but you must complain to your supplier first.

Visit our Gas and electricity arrears fact sheet for more information.

TV licence

Buy a licence

​You will need a TV licence unless you are 75 years or older and you, or your partner living at the same address, receive Pension Credit. Even if you have to pay a fine for not having a licence, you still need to buy a licence as well.

TV licence arrears are a priority payment because you can be fined in the magistrates’ court if you do not have a licence. In Your budget, put these payments under household outgoings.

If you are being threatened with prosecution, ask TV Licensing about the Simple Payment Plan. If TV Licensing agree to set up a Simple Payment Plan and you keep to the payments, it could stop any further action being taken.

If you are contacted by TV Licensing, or are being prosecuted for not having a licence, it is a good idea to buy a licence as soon as possible. You should send a copy of the licence to the court to help your case. It is also a good idea to plead guilty to not having a licence and explain the reasons why (even if this is just that you simply forgot).

You may already have a fine for not paying your TV licence.

Magistrates’ court fines

The magistrates’ court may order you to pay a fine, for example, for a driving offence, for not having a TV licence or for some other offence. You must treat a magistrates’ court fine as a priority debt. The court has a range of further types of action it can take, including using bailiffs and taking money from your wages or your benefits. Also, you could be sent to prison if you do not pay.

What type of court?

If you have been taken to court for a non-priority debt such as a loan or credit card, this would be in the County Court and you cannot be sent to  prison. For more information see Dealing with your non-priority debts.

Golden rules

  • If you have a magistrates' court hearing or have arrears from failing to pay fines, contact us for advice.
  • Always go to court hearings.
  • Take your budget with you.
  • Try to make arrangements that you can afford to pay or contact the court if you cannot pay.
  • Keep paying what you can afford.

Visit our Magistrates' court fines fact sheet for more information.

Parking penalty charges

Many local authorities have made parking offences non-criminal offences and instead enforce parking penalty charges through the Traffic Enforcement Centre in Northampton. There are special rules that apply if you have this type of parking penalty. You cannot be sent to prison but the local council can ask the County Court to use private bailiffs to try to recover the money. If you have a parking penalty charge, contact us for advice.

Which type of parking penalty do I have?

It is important that you know the type of parking penalty you have because the rules about what happens if you don’t pay are different. You should check whether you have a penalty charge notice from the local council or a fixed penalty from the police. The rules are also different if you parked on private land. If you are unsure, contact us for advice.

Visit our Penalty charge notices fact sheet and Parking charge notices fact sheet for more information.

The Child Maintenance Service

The CSA scheme is changing. Some child maintenance cases are now dealt with by the Child Maintenance Service. This is gradually replacing the CSA. This means some of the rules will be different when you apply for maintenance and there may be extra powers to make you pay. Contact us for advice.

You can be ordered to pay maintenance either by the court, as part of the separation or divorce process, or by the Child Support  Agency (CSA) or the Child Maintenance Service (CMS)

Maintenance through the court

If the court has ordered you to make regular payments, you can apply to reduce the payments if you cannot afford them.

If you do not pay, the court can order you to go to a hearing to explain why you have not paid.

If the court decides that you are deliberately not paying, they may try to:

  • use bailiffs to seize goods and sell them;
  • take payments direct from your wages; or
  • order you to be sent to prison.

Maintenance arrears

If you are behind with your maintenance, contact the court immediately. Take a copy of Your budget to any court hearings and explain why you cannot pay the full amount. The court may reduce the amount you have to pay.

Maintenance through the Child Support Agency or the Child Maintenance Service

If you have a child or children who do not live with you, the CSA may ask you to pay child maintenance. The CSA will decide the amount you have to pay by using a set formula. If you do not pay, the CSA can collect it directly from your wages, or from benefits without a court order.

The CSA can apply for a deduction order to take payments out of your bank account. This can be for regular payments or for a lump sum, but there are rules about how much money the CSA is allowed to take out of your account.

If they cannot do any of these things, the CSA can ask the magistrates’ court for a ‘liability order’. If they do this, they may try to take further action. Contact us for advice.

Benefit overpayments

You may be told by the Department of Work and Pensions (DWP) that you have been overpaid a benefit, such as Income Support, and that they want you to pay this back. The DWP must tell you if the overpayment can be recovered from you and why. If you do not agree that you owe the money, you can appeal. The law on overpayments is complicated, so before deciding whether to appeal, contact your local advice centre or contact us for advice.

The DWP can make deductions from most types of benefits to collect overpayments. There are maximum weekly amounts that can be taken. If this will cause you hardship, contact the DWP and ask them to take less. Use Your budget and explain why the payments will cause you hardship.

In some circumstances, the DWP will agree to ‘write-off’ the overpayment if your repayments are causing you hardship. Ask your local MP to help.

If you are not on any benefits, you can treat the overpayment as a non-priority debt.

The DWP could take action against you in the County Court to get their money back, but there are steps you can take to deal with this. If the DWP threatens to take court action against you, or if you receive any court papers, contact us for advice.

Special rules for Housing Benefit and Council Tax Benefit

If your council says you have been overpaid Housing Benefit or Council Tax Benefit, special rules apply. Different rules may also apply if the council say they have overpaid you as part of the Council Tax Reduction scheme. Contact us for advice.

Tax-credit overpayments

In some circumstances, you may be told that you have been overpaid Child Tax Credit or Working Tax Credit. If you do not agree that you have been overpaid, or that the amount is correct, you may be able to appeal. Contact us for advice.

Overpayments can be recovered in different ways, including deductions from your ongoing tax credits claim or your Universal Credit claim, by reducing your tax code or even through the same enforcement methods as a tax debt. In some cases, you can also agree in writing for deductions to be made from your benefits.

HMRC may agree not to recover the overpayment if it is caused by a mistake by them and you have followed the rules for reporting any mistakes you spot and changes in your circumstances. Contact us for advice if you are in this situation.

In some circumstances, you may be told that you have been overpaid Child Tax Credit or Working Tax Credit. If you do not agree that you have been overpaid, or that the amount is correct, you may be able to appeal. Contact us for advice.

I cannot afford the repayment

If paying the tax credits back will cause you hardship, you may be able to reduce the rate at which you pay it back. You should speak to HMRC and ask for time to pay it back at a rate you can afford. See their code of practice What happens if we have paid you too much tax credits?. In cases of extreme hardship, or if there is evidence of mental-health problems, they can consider writing off all or part of the debt.

Overpayments can be recovered in different ways, including deductions from your ongoing tax credits claim or your Universal Credit claim, by reducing your tax code or even through the same enforcement methods as a tax debt. In some cases, you can also agree in writing for deductions to be made from your benefits.

HMRC may agree not to recover the overpayment if it is caused by a mistake by them and you have followed the rules for reporting any mistakes you spot and changes in your circumstances. Contact us for advice if you are in this situation.

Household hire purchase or conditional sale

The rules for dealing with hire purchase and conditional sale are usually the same whether they are a business or household priority debt.

​Next steps

You are now at the end of Step 3. If you have priority debts, hopefully this section has helped you work out how to deal with them. Make sure you update your budget with any payments you have agreed to make to your priority creditors.

Step 4 is the last step and it’s called Dealing with your non-priority debts. This step will explain which debts are non-priority, the powers your creditors have to make you pay and your options for dealing with your debts.

You will need the information from Your budget to help you decide which option is right for you.