Key points
- Sole traders are personally responsible for business debts
- HMRC may agree a Time to Pay arrangement for tax debts
- An IVA can allow you to keep trading
- Bankruptcy can affect your ability to trade
- Irregular income can be taken into account
Business debt or personal debt?
If you're a sole trader or in a partnership, there's no legal difference between your business and personal debts: you're responsible for both. Limited company directors are different, as company debts usually belong to the company unless you gave personal guarantees.
Tax debts
HMRC debts are priority debts. If you can't pay a tax bill, contact HMRC as early as possible and ask about a Time to Pay arrangement.
Debt solutions while self-employed
- IVA: often suitable for self-employed people with a steady income, and can allow you to carry on trading.
- DMP: flexible if your income varies.
- Bankruptcy: may mean business assets are sold, and could affect your ability to trade.
Frequently asked questions
Can I get an IVA if my income goes up and down?
Yes. Payments are based on an average, and IVAs can sometimes be varied if your income changes significantly.
Will HMRC take me to court?
HMRC has strong collection powers. Contacting them early and agreeing Time to Pay usually avoids enforcement.
Can I keep my van or tools?
Equipment you need for work is often protected or allowed for, but it depends on the solution and the value.
Free debt advice is available
You can get free, impartial debt advice from not-for-profit organisations through MoneyHelper's debt advice locator.
Sources and further reading
This guide is general information, not advice, and was correct when last updated. Rules and limits can change. Speak to a regulated adviser about your own situation.