Self Employed Debt Help

Running your own small business can be extremely stressful, particularly in the current economic climate.

Managing your own business and juggling your debts can sometimes be a challenge when it comes to paying the bills.

We have put together this useful article to offer debt advice and help ease the stress and help you pay off your debts once and for all.

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Table of Content

1 What is a sole trader?
- 1.1 What’s the difference between a sole trader and a regular business?
2 What Help is Available for Self Employed Debt?
3 How Does HMRC View IVA’s?
4 Debt Management Plan for Self Employed
5 Popular Questions
6 Are you a sole trader who needs debt help?
7 All UK Insolvency Practitioners

What is a sole trader?

A sole trader refers to anyone who runs their own business as an individual and is self-employed. A sole trader keeps all the business’s profits after they have paid tax on them. You are personally responsible for any losses your business makes as a sole trader.

What’s the difference between a sole trader and a regular business?

Sole traders have relatively easy setup costs that can be considerably reduced compared to more complex businesses such as partnerships or limited companies.

The principal disadvantage of being a sole trader is that there is no distinction between business debts and personal debts, and the sole trader is therefore personally held responsible for all owed debts.

What Help is Available for Self Employed Debt?

A sole trader can find debt solutions that include debt management plans, IVAs and bankruptcy in some instances.

The individual voluntary arrangement was first introduced to the public back in 1986 and is generally intended to help those who have debt problems.

The plan allows viable businesses to continue trading whilst releasing cash to creditors. It includes all unsecured creditors, such as trade creditors’ overdrafts and a range of HMRC liabilities, including personal liabilities.

How Does HMRC View IVA’s?

HMRC is generally supportive of IVA’s, but they do require all outstanding VAT, PAYE, and self-assessment returns to be submitted before they will approve the IVA. HMRC recognises that people and businesses may face financial difficulties, but there is no justification for failing to file statutory returns.

Debt Management Plan for Self Employed

A Debt Management Plan (DMP) is an informal agreement between a debtor and its creditors that allows them to repay debts at an affordable rate, without having to borrow more money.

A DMP can be a good option if you are on top of your business debts but you are having trouble paying your personal debts.

It is not recommended to use a DMP for commercial debts since it is far more difficult to convince these creditors to accept reduced payments, freeze interest and penalties, and agree not to pursue legal action.

If you have both business and personal debts that are unaffordable, an Individual Voluntary Arrangememt (IVA) may be a better option for you.

What Type of Debts Can DMP Cover?

For people with normal unsecured debts, DMP’s plans are generally the best option. These include:

Credit card debt
Bank loans
overdrafts
Catalogue debt

Debt management plans do not allow for business debts, secured loans or priority debts because they are informal agreements.

What Debts Are Not Covered?

Any debts owed to HM Revenue & Customs (HMRC), such as VAT arrears, cannot be included in your DMP if you are self-employed.

National insurance, mortgages, and other high-priority debts cannot be included in a DMP. As a result, you’ll need to consider this before deciding on one. If you have priority debts, you’ll have to pay these off separately.

Advantages & Disadvantages of a DMP For Self Employed People

We have delved deeper into some of the benefits and risks associated with management plans in the UK.

Advantages

The advantages of DMP for the self employed are:

It will help you pay your creditors only what you can afford each month. In most cases, creditors will agree to accept lower payments in exchange for a freeze or reduction in interest charges.
A licensed company to deal with all creditors and their correspondence. This involves handling phone calls and letters, as well as relieving the stress of dealing with creditors.
Creditors frequently suspend or refrain from taking further efforts to recover your debt.

Disadvantages

Some disadvantages associated with DMP’s are:

Creditors are not required to freeze interest and charges under a DMP because it is an informal debt solution. Rather of freezing interest rates, some creditors may agree to cut them.
A DMP may have a negative effect on your credit report. Default notices can be sent by creditors, and they will stay on your credit file for six years. Your creditworthiness will suffer as a result.
You may receive an unpleasant contact from a creditor from time to time, especially if they are using a debt recovery company.
You can’t guarantee that creditors won’t take legal action or that collection activity will stop.

How Much Does a DMP Cost?

There are no monthly fees with a non-profit DMP, so all of the money you contribute goes toward paying down your debts. Some companies charge a fee to set up the plan. These charges are frequently included in your monthly payment to them.

Are you a sole trader who needs debt help?

If your company is suffering from financial troubles, speak to a licensed Insolvency Practitioner [IP] for debt advice today. We have listed the best insolvency practitioners 2024 who can provide free, no obligation advice to get your business back on track and become debt free.

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An IP review the personal income of small business owners and provide debt help allowing you to pay managaable monthly repayments.

All IP’s should work as part of the insolvency practitioners association to help trading business and self employed individuals with their debts.

All UK Insolvency Practitioners

Here is a full list of Insolvency Practitioners in the UK if you are looking for debt advice and to manage your business finances:

The insolvency practitioner list above gives you plenty of options to choose the best firm in April 2024 to deal with your important business debts.

They can give advice on important business debts such as tax and business rates. The debt solutions can help with both trading and former trading businesses like the money advice trust.