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i The advice on this page applies to residents in England and Wales only.

Self-employed debt advice

Self-employed or sole trader debt advice

We know that trying to manage a small business and its costs can put a lot of pressure on you. If you're running your own business while juggling your household bills and personal debts, it can be difficult to work out what to pay first.

 Whether you're setting up a business, or working out costs, we've got a range of information to help you.

Am I a sole trader?

One of the most common areas of confusion for our self-employed clients is the difference between a sole trader and a limited company. Our table below sets out the differences between the two.

Sole trader Limited company
You run your own business as an individual. Directors are responsible for the running of the company. Simply put you're an employee of your own company.
You're personally responsible for the debts and costs of the business. The company's responsible for the business finances and debts.
If you can't afford to pay the business debts, you're personally responsible and your personal income and any assets you have could be at risk. If you can't afford to pay the business debts, you're not personally responsible for them unless you've signed a personal guarantee

Which business costs do I need to pay first?

Some of your business costs are more important than others. The list below covers all of the things you need to pay to make sure you can carry on running your business.

Type of debt Consequence of non-payment
Mortgage or secured borrowing on business premises Losing your business premises
Business rent arrears Eviction or a visit from bailiffs
Business rates A visit from bailiffs or imprisonment
Unpaid fines A visit from bailiffs or imprisonment
Tax, VAT or National Insurance A visit from bailiffs, bankruptcy or imprisonment
County court judgments A visit from bailiffs or a charging order 
Equipment leases Repossession of the leased item
Water, gas & electricity bills Disconnection

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I've fallen behind with my tax

If you have unpaid Income Tax, VAT or National Insurance, you need to contact His Majesty's Revenue and Customs (HMRC) as soon as possible.

Make sure you keep HMRC up to date with your situation. If you're struggling to pay, let them know, otherwise they'll assume you're avoiding making your payments.

First, check that HMRC are asking you to pay the right amount. Make sure you’ve given them correct up-to-date information about your business takings and expenses. If you don’t do this, the tax bill may be overestimated.

Next, make an offer to pay off the debt at an amount you can afford. If you need help working out how much you can afford to pay, we can help. All you need to do is speak to one of our advisors and we'll help you put a budget together and work out how much you can afford to pay towards your tax.

Even if your offer of payment is refused, you should start paying the amount you can afford straight away.

What happens if I don't pay my tax, VAT or NI?

Tax, VAT and National Insurance are a priority, especially if your business is still trading, because HMRC can take your goods to recover the unpaid tax without having to get a court order first.

HMRC will normally want you to repay your debt as soon as possible. The best way to set up an arrangement is to contact the office that you received your most recent letter from. You can explain your situation to them, and if they agree that you can't afford to pay the debt in one lump sum, they may let you pay it back in monthly instalments.

If you don't do this, HMRC could take the following action:

Bailiffs

HMRC enforcement agents (bailiffs) can take stock and equipment from your business or goods from your home. These items can be sold and the money used to clear your debt, and they can do this for any tax, National Insurance, VAT or tax credit debts. They don’t need to get a court order to do this.

HMRC enforcement agents can use force to enter your business premises, but they must get permission from a court before using force to enter your home. In practice, they rarely use force, and if they can’t get goods from you or agree a payment arrangement, they’re more likely to use another collection method such as making you bankrupt.

County Court action

They could get a County Court judgment (CCJ) against you.

If they apply for a CCJ, you'll be sent some blue and white court forms. You need to fill these in and offer an affordable monthly repayment amount. Find out how to fill in these forms and more about the claims process in our CCJ section.

If you didn't pay the CCJ, they could use enforcement methods such as bailiffs (enforcement agents) or applying for a charging order, to attach the debt to your property. 

Magistrates' court hearing

If you owe less than £2,000, HMRC could issue you with a summons to a hearing. You would need to attend this with your business and household budget, to support an offer to pay by instalments.

If you don't keep to these instalments, another hearing would be arranged to decide whether you should be sent to prison. Before this could happen you would need to be found guilty of ‘wilful refusal’ (when you have the ability to pay but refuse on a point of principle) or ‘culpable neglect’ (where you have the money but you've ignored the debt).

The court may decide not to send you to prison but it can't write off your debt.  

Bankruptcy

If you owe more than £750, HMRC could start bankruptcy proceedings against you. You can find more details about how this would work on our bankruptcy from creditors page.

Take money from your wages

If you work for an employer, HMRC can collect a debt by altering your tax code to increase the amount of tax deducted from your wage.

HMRC can do this for debts of up to £3,000 if you earn less than £30,000. If you earn more than this, they can collect larger debts through your tax code, up to a maximum of £17,000 if you earn more than £90,000 a year.

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I'm self-employed and struggling to pay my bills

If you’re self-employed, living in England, Wales or Scotland, and looking for help with your debts, contact Business Debtline. 

Run by national charity the Money Advice Trust, Business Debtline offers practical self-help to small business owners and people who are self-employed, empowering people to speak to creditors directly, and put solutions in place to resolve their business finance and debt problems.

They can:

  • give advice on important business debts such as tax and business rates
  • provide support if creditors take court action
  • help review business finances and decide the next steps to take
  • advise on how best to recover debts from other people 
  • advise on how to close a business if that’s the right thing to do


They can also advise on personal debts such as credit cards and bank loans, and help you to budget better.

Business Debtline is completely free, confidential and independent. Their website contains guides, fact sheets and sample letters, as well as a business and household budget tool. It also provides a webchat service.

If you're self-employed and living in Northern Ireland, get in touch with Advice NI who offer free, independent and impartial advice on how to deal with your debts.

Their telephone based advice is tailored to your situation, whether you're a sole trader, partnership, limited company, and their solutions are designed for both trading and former trading businesses.