How to get started
This fact sheet covers England & Wales. You will need different advice if you live in Scotland.
If you have debts that you are finding it difficult to pay and are in business, take a look at the following checklist. It explains what you need to do to put yourself in the best position to start dealing with your debts.
As well as this fact sheet, we also produce other detailed fact sheets covering other areas of debt advice and debt solutions. We also produce sample letters to use. To get a copy, go to www.businessdebtline.org. If you would like a paper copy of a fact sheet or sample letter, contact us and we will send you one.
Keep your money safe
It can take a bit of time to set up the debt solution that’s right for you and your business, so check that you have a safe bank account.
Personal bank accounts
Make sure that any money you get, or any savings you have, go into an account with a bank or building society that you do not owe any money to. This is because if you owe money to a bank or building society, they can take money from an account you have with them to pay towards the debt. This is called the ‘right of set-off’.
If you currently bank with an organisation that you owe money to, open a safe bank account. Do this with a bank or building society that you do not owe money to. This will help to put you in control of your finances. For more information, see our Safe bank accounts fact sheet.
Business bank accounts
The right of set-off also applies to business accounts if the business (or person named on the business bank account) owes money to a bank or building society that the business banks with. Check whether you need to open a safe business bank account too.
Identify your trading status
If you run your own business, you will probably be a sole trader, a partner in a business partnership or a director of a limited company. It is important to know your trading status as this affects:
which assets belong to you;
which debts you are personally liable for;
which budget you need to fill in; and
which debt solutions may be available to you and, if appropriate, your business.
You are usually a sole trader if you run your business as an individual and work for yourself. The business’ letterheads, bank statements, invoices and bills will usually just have your name on them.
Sole traders are personally liable for all the business debts. This means that your business and personal assets could be at risk if you fall behind with payments on your debts. For more information, see our Sole traders fact sheet.
Partners in a business partnership
This is where two or more people carry on a business with the aim of making a profit. All partners in a business partnership are personally liable for most of the business debts. This means that it is not possible to divide up responsibility for the partnership debts between the partners.
Your business and personal assets could be at risk if you fall behind with payments on your debts. For more information, see our Business partnerships fact sheet
Directors of a limited company
A limited company will usually have ‘limited’ or ‘ltd’ in its business name. It must also be registered with Companies House and will have a company number.
A limited company is a separate legal entity from its directors. As a director, you are not usually liable for the business debts unless you have given a personal guarantee or committed a director’s offence. You remain liable for your personal debts. For more information, see our Limited companies fact sheet.
Contact us for advice if you are:
unsure of your business status; or
have a business status other than a sole trader, partner in a business partnership or director of a limited company.
Know what you owe
Make a list of all the debts owed and make sure that you know who is liable for each of them.
This is important because how much you owe and who you owe the money to will affect which debt solutions are available. Depending on your trading status, you may need to choose one debt solution for your personal debts and another for the business debts.
Know which debts are the most important
The law gives different creditors different ways of getting their money back.
Priority creditors have more power to get you to pay. This is why priority debts are more important than other debts. It is important to know which debts are priority debts because it will affect:
what action the creditor can take to try to get you to pay;
what rules and guidelines the creditor should follow; and
whether the debt can be included in the debt solution that you choose.
Sort your debts into priority and non-priority debts using the following information.
Here are examples of some priority debts. If you have missed payments on any of these agreements, list them as a priority debt.
Examples of priority debts
Personal Business Household rent Business rent or lease Household mortgage Business mortgage Secured household loan Secured business loan Council tax Business rates Household energy Business energy TV licence Income tax, National Insurance contributions and VAT Magistrates' court fine Business water Child maintenance Accountants Tax credit overpayment Business equipment lease Benefit overpayment Major suppliers Penalty charge notice for parking Business penalty charge notice for parking Household hire purchase or conditional sale Business hire purchase or conditional sale Household bill of sale (also called a logbook loan) Business bill of sale (also called a logbook loan) Some business overdrafts and loans
Most other debts, such as unsecured credit cards, bank loans and overdrafts are usually non-priority debts. These creditors have less power to get their money back than priority creditors. You still need to deal with your non-priority debts, but only after you have made arrangements with your priority creditors.
Give yourself time to choose a solution
Send your creditors a hold action letter. This lets them know that you are dealing with your debts and asks for time to plan what to do next. Banks and building societies usually agree to this. However, even if a creditor does not agree, it is still good to let them know that you are dealing with your situation. See our Hold action on your account sample letter.
Do you have old debts?
If you haven’t written to a creditor or made payment towards a particular debt for several years, contact us for advice before sending the hold action letter.
Fill in the right budget
Our Business and household budgets cater for a range of business types. You need to know what your trading status is so that you can choose the right budget to fill in.
The right budget will help you to check whether your business is viable. This means that it has enough money coming in to pay its usual running costs (business outgoings).
It will also show what money is available to pay towards any debts.
For a sole trader, the Business and household budget will include the income and outgoings for your sole trading business and your home.
For a partner in a business partnership, the Business and household budget will look at the income and outgoings for the business partnership and your share of any available drawings. It will also look at the income and outgoings for your home.
If you are a director of a limited company, you will need to speak to your accountant or bookkeeper to check whether the limited company is viable and what it can afford to pay you every month. You can then fill in the Household budget.
If you need to fill in a budget, your adviser will have sent you either a paper copy of the budget sheet or a link to our online budget tool.
Our online budget asks you for your trading status and guides you to the correct budget to use. It will add up your figures and do the calculations for you. For sole traders and partners in a business partnership, the online budget also estimates your monthly income tax and National Insurance contribution liability.
It can take time to gather all the information that you need to fill in your budget. It’s an important tool that will help you to deal with your debts, so don’t be tempted to rush through it. Your budget needs to be accurate, so take time to check your figures. It will also be difficult for you to stick to your budget if you figures are unrealistic.
Always fill in your budget before you decide how to deal with your debts.
Deal with priority debts first
If you have any priority debts, you will need to use the money available to pay towards your debts to come to a payment arrangement with these creditors first. Your budget will show what money is available. Start making payments to your priority creditors while you decide which debt solution is right for you.
Ceasing to trade
If your business isn’t viable, or you decide that you do not want to continue trading, contact us for advice.
Check that you are getting all the income that you are entitled to
Extra income can make a big difference to your situation and the debt solutions available to you.
Many self-employed people we speak to miss out on extra income because they assume they aren’t entitled to any extra help. There are lots of different types of benefits and tax credits and each has its own set of rules. What you are entitled to will depend on your personal circumstances. It can be affected by things such as your age, household income, savings, National Insurance contribution (NIC) record and whether you are able to work.
You do not need to know the rules. Turn2us is an expert in this area and will do the work for you. You can do a free personalised benefits check with Turn2us in less than 10 minutes. Millions of people already have. To see what you could get, go to www.turn2us.org.
Choose your debt solutions
There are many things to consider when choosing a debt solution, such as how long it will take and whether it will affect any assets that you own, such as a car or equity in your home.
What is equity?
Equity is the difference between how much your home is worth and the total amount owed on any mortgage and other lending that you have secured on it. If your home is worth more than your mortgage and secured lending, there will be equity.
Make sure you think about all the advantages and disadvantages before you choose a solution.
For an overview of the solutions available for your personal debts, see our Ways to clear your debt fact sheet.
For an overview of the solutions available for business partnership debts, see our Business partnerships fact sheet.
For an overview of the solutions available for limited company debts, see our Limited companies fact sheet.
We advise that you make a short list of the debt solutions that you are interested in. Then take a look at our more detailed debt solution fact sheets. You will find these in our Fact sheet library at www.businessdebtline.org. If you would like a paper copy of a fact sheet, contact us and we will send you one.
What you do next will depend on the solution you have chosen. If you want to discuss a debt solution or have further questions, contact us for advice. We also have lots of useful information on our website. Go to www.businessdebtline.org.