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This guide tells you how to deal with common business debts if you have been self-employed, but are no longer trading.

Use this guide to:

  • get more information about debts to HM Revenue & Customs (HMRC);
  • understand what to do if HMRC takes recovery action against you;
  • deal with business rates, rent and utility arrears, accountants’ bills, equipment leases and supplier debts; and
  • find out where to get specialist help and advice.

Dealing with business debts

This guide gives information about business debts that self-employed people commonly have. We explain how you can deal with these debts if you have stopped trading. We do not give information about debts owed by limited companies in this guide.

If you are still trading, you will need to get more advice and information about running your business and dealing with the ongoing debts your business may have.  Contact  Business Debtline on  0800 197 6026. 

Debts to HM Revenue & Customs (HMRC)

HM Revenue & Customs (HMRC) is responsible for collecting income tax, National Insurance and value added tax (VAT). HMRC is likely to take further action against you more quickly than some other types of creditors. This may mean that you need to treat a debt to HMRC as a priority. However, you may not need to do this if the types of action they can take do not have serious consequences for you. In the following sections we give more information on the different types of debt that HMRC collect and how they can take action to recover the money you owe. If you are not sure whether to treat a debt to HMRC as a priority, contact us for advice. 

Income tax

When dealing with income tax arrears, you need to consider the following points.

  • After completing your self assessment tax return, check whether your tax debt is correct. If you think the amount is not correct, contact HMRC to discuss what you think you do owe.
  • Send in your tax return even if it is late. The deadline for sending in your tax return depends upon how you send it in. If you send in your tax return over the internet, the deadline is usually 31 January each year. If you send in your tax return by post, the deadline is usually 31 October each year.
  • If you have not sent HMRC your tax return by the required deadline, HMRC will estimate how much tax you owe. This is called a ‘determination’. You have no right of appeal against a determination so if you think the figures are wrong, send HMRC your tax return as soon as possible.
  • If you are late sending your tax return, or pay your tax debt late, penalties can be added to the amount you owe HMRC.
  • If you pay your tax debt late, HMRC will also add late payment interest to the amount you owe. This is calculated at a set rate. It is very rare for HMRC to stop adding this interest. This means that the amount you owe can increase quickly.
  • HMRC has an online tool which estimates penalties and interest for late filing and late payments under self assessment. Go to GOV.UK and search for ‘Estimate your penalty for late Self Assessment tax returns and payments’.

Outstanding tax returns

If any of your tax returns are still outstanding, HMRC will not usually allow you further time to pay your debt back in instalments.

You may need to treat income tax arrears as a priority debt. It is important to try to make an arrangement to pay HMRC as soon as you can. Use your budget to work out how much you can afford to pay.

You can contact HMRC Self Assessment payment to ask for a payment arrangement on 0300 200 3820. Make sure you have your budget available when you contact HMRC. It will show how much you can afford to pay. It will also help to show that you are not refusing to pay HMRC and cannot pay your debt in full immediately.

In some situations, you may be able to set up an online arrangement to pay HMRC in instalments through your Government Gateway account. For more information about setting up an online payment arrangement, go to GOV.UK and search for ‘If you cannot pay your tax bill on time’.

Value added tax (VAT)

VAT is a tax that is charged on most goods and services that certain businesses provide. You should have been registered to pay VAT if your annual turnover was above a certain amount. The amount you should have paid will usually be the VAT on your sales minus the VAT on purchases for goods and services you bought for your business.

If your business was VAT registered, contact HMRC to de-register for VAT if you have not already done so. This will help to make sure they have worked out how much you owe properly. 

  • Make sure all your VAT returns have been sent to HMRC.
  • If you have outstanding VAT returns, HMRC can estimate what you owe and send you a ‘VAT notice of assessment of tax’.
  • If your VAT bill has been assessed and you disagree with the amount being claimed, you can ask for a review within 30 days. If you still disagree with the decision, you can appeal to a VAT tribunal. If you are considering making an appeal, contact us for advice.
  • HMRC can add penalties if you are late submitting your VAT returns or pay your VAT debt late. This may increase your debt.
  • If you pay your VAT debt late, HMRC can also add late payment interest to the amount you owe.

Outstanding VAT returns

If any of your VAT returns are still outstanding HMRC will not usually allow you further time to pay your debt back in instalments.

You usually need to treat VAT arrears as a priority debt. Use your budget to help you work out what offer of payment to make to HMRC.

After you have stopped trading and are no longer registered for VAT, HMRC may allow you to pay your VAT arrears over a set period of time. Call HMRC VAT payment on 0300 200 3831 to ask for a payment arrangement. Have your budget available to show that you are offering what you can afford.

In some situations, you may be able to set up an online arrangement to pay HMRC in instalments through your Government Gateway account. For more information about setting up an online payment arrangement, go to GOV.UK and search for ‘If you cannot pay your tax bill on time’.

Be aware that any late payment interest will continue to be added to your VAT debt even if you have a payment arrangement in place with HMRC.

National Insurance

National Insurance contributions are dealt with by the HMRC National Insurance Contributions Office (NICO). There are different types, or ‘classes’, of National Insurance contributions.

Class 1 contributions are paid by employees unless their earnings are below a certain limit.

Class 2 contributions were previously paid by self-employed people at a weekly flat rate unless their earnings were below a certain limit. For the 2024 to 2025 tax years onwards, self-employed individuals are no longer required to pay class 2 contributions.

Class 4 contributions are paid by self-employed people if their annual profit is above a certain limit. The limit can change every year.

Update HMRC

It is important to tell HMRC when you stopped being self-employed.

Paying class 2 contributions late

It is a criminal offence not to have paid class 2 contributions on time and HMRC can ask the sheriff court to fine you for non-payment. In practice, this is unlikely. If HMRC threatens to do this, contact us for advice.

If you have National Insurance arrears, they may need to be treated as a priority debt. Use your budget sheet to work out an offer of payment that you can afford. Contact us for advice.

What further action can be taken against me for debts to HMRC?

HMRC can try to recover the money you owe in a number of different ways.

Changes to your tax code

For some debts to HMRC, if you are currently working for an employer either full or part-time, HMRC may try to recover the money by changing your tax code. This allows them to take the debt from your wages before you get them. If you think HMRC is trying to do this, contact us for advice.

Summary warrants

If HMRC will not accept your offer, they will usually ask the sheriff court to grant a summary warrant. This is a special type of court order which confirms that you owe HMRC a certain amount of money.

After a summary warrant has been granted, HMRC must send you a ‘charge for payment’.  A charge for payment is a formal request in writing, demanding that you pay a debt within a certain period of time, usually  14 days. HMRC cannot take further action against you (called diligence) until the charge for payment has been served and the time limit stated on it runs out. The charge for payment should usually be served by a sheriff officer and a witness.  ‘Serving’ a document is a legal term, that means it has been delivered in the correct way.  

The main types of diligence which could be used against you are as follows.

  • A bank arrestment and action of ‘furthcoming’. This can freeze money in your bank or building society accounts and release it to the creditor.
  • An earnings arrestment. This would mean that your employer has to make regular deductions from your wages and pay the money to HMRC.
  • An attachment of property outside your home. This is where sheriff officers would be used to try to take goods you own outside your home. These goods may then be sold to raise money to pay HMRC.
  • An attachment of money. This is where sheriff officers try to seize money or cheques that you hold. A money attachment cannot be made for money that is kept within your home, or in a situation where an arrestment of your bank account would be possible instead. It is a type of diligence that could be used if you operate a business which deals mainly in cash.
  • An application to the sheriff court for an exceptional attachment order (EAO). This would allow the sheriff officer to force entry to your home to seize and sell your goods. This type of application is not as common as other attachments and the sheriff would make the final decision about whether to grant the application.

For more information, see our Diligence guide.

Time to pay at court

It is not possible to apply to the sheriff court for time to pay income tax, VAT or National Insurance arrears either before or after HMRC gets a summary warrant against you. 

Sheriff court decrees

As a first step, HMRC will usually consider applying for a summary warrant against you. This is because it is a quick procedure. However in some situations HMRC may make a claim for the money you owe through the sheriff court to get a ‘decree’ against you. This is a different type of court order which confirms that you owe the money. It is usually a longer procedure. If HMRC decides to use this route, they must send you a charge for payment before they can use most forms of diligence. The types of diligence they can use include those described in the earlier section Summary warrants, as well as an ‘inhibition’ on the sale of property.

  • An inhibition on the sale of property, such as your house, would prevent you from selling your home or taking out further borrowing secured on it.

A sheriff court decree will be recorded on your credit reference file for  six years. This will make it more difficult and expensive for you to take out credit.

If you receive papers from the sheriff court about any action HMRC is taking against you, contact us for advice. 

Time to pay at court

It is not possible to apply to the sheriff court for time to pay income tax, VAT or National Insurance arrears either before or after HMRC  gets a decree against you.

Bankruptcy

HMRC could also try to sequestrate you (make you bankrupt). They may be more likely to do this if you have a valuable property or other assets that you own which would be sold in bankruptcy to raise money to pay your creditors.

You must owe HMRC at least  £5,000  for them to be able to petition for your bankruptcy. HMRC must also show that you are ‘apparently insolvent’. This is a legal term meaning that you are viewed as being unable to pay your debts as they fall due. The main circumstances in which you will be apparently insolvent are as follows.

  • The creditor has got a summary warrant or decree against you, sent you a charge for payment and you have not paid the debt within the time stated on the charge for payment (usually  14 days).
  • The creditor has sent you a ‘statutory demand’ and you have not responded to it within  21 days  by paying or ‘denying’ the debt. A statutory demand is a legal request for the money you owe. If you receive a statutory demand, contact us for advice.

You may be able to make yourself bankrupt to deal with your debts and stop creditors using diligence against you.  However, this is a serious step. Your home, assets and employment could be at risk. If you are considering making yourself bankrupt, contact us for advice. 

For more information, also see our Bankruptcy guide.

Send in your tax return

If you have not already sent your tax returns to HMRC, it is very important that you do this. This will allow HMRC to calculate your debt accurately. You may find that you owe less than you first thought.

What service should I expect when dealing with HMRC?

HMRC has a service commitment charter, called the ‘HMRC Charter’. HMRC should provide you with a service that is fair, accurate and based on mutual respect. They should also be mindful of your wider personal situation, and  give you extra support if you need it.

How can I complain about HMRC?

If you are unhappy with the way HMRC has dealt with your case, there is a complaint procedure that you can follow.

You may want to complain if you have been refused time to pay your arrears and you feel that this is unreasonable in view of your circumstances.

  • You should first contact the HMRC office that has been dealing with your case. If you are not happy with the response, your complaint will usually be passed to a ‘complaints handler’. HMRC accepts complaints by phone and in writing.
  • If you are still not happy with the response, you can ask HMRC to look at your case again. They will usually ask a different complaints handler to consider your case.
  • After going through these steps, if you are still not happy you can contact the Adjudicator’s Office. See  Useful contacts  at the end of this guide. The Adjudicator is not part of HMRC and they can act as an impartial referee for unresolved complaints.
  • If you are not happy with a decision that HMRC has made, such as the amount of tax you owe, or the charges they have asked you to pay, you may need to follow the review and appeals process instead of complaining. Contact us for advice.
  • Details of how to contact HMRC to make a complaint can be found on their website. Go to  www.gov.uk and search for ‘Complain about HMRC’.

Business rates

Business rates are a tax you have to pay to the council. If you have stopped trading, tell the council straight away. You may be responsible for paying business rates if you are still leasing premises, even if they are empty. However, there may be discounts that you can claim.  You may also be entitled to ‘relief’ from business rates in certain circumstances. Contact us for advice. 

Check the bill to make sure it has been calculated correctly. 

Business rates are a priority debt. Use your budget  to work out an offer of payment that you can afford. 

The council can use the summary warrant procedure against you for unpaid business rates. The types of diligence that the council can use are the same as those that HMRC can use. See the earlier section  Summary warrants . The procedure is almost exactly the same as for unpaid council tax. 

Bankruptcy

Your local authority could apply to make you bankrupt (sequestrate you). You must owe the local authority at least  £5,000 for them to be able to do this. The process used is similar to that for HMRC debts. See  Bankruptcy  in the earlier section  What further action can be taken against me for debts to HMRC?.

Remitting business rates arrears

The council has the power to remit (write off) all or part of your business rates arrears. In practice, local authorities do not agree to this very often. However, it may be worthwhile making an application if you feel that you can show that you are in exceptional circumstances.

In order to remit business rates, the council must be satisfied that:

  • you would suffer hardship if they did not remit the business rates; and
  • it is reasonable for them to remit your business rates, taking into account the interests of local people.

You need to write to the council asking for your business rates to be remitted under section 25A Local Government (Scotland) Act 1966.

You should:

  • explain how you would suffer hardship if the business rates arrears are not remitted;
  • explain what steps you have taken to make the business work; and
  • give full details of your budget and any assets you have.

Water rates

The water supply to your home cannot be disconnected for non-payment.  However, this does not extend to supplies to business premises. If you have stopped trading, old business-related water debts can usually be treated as non-priority debts. 

The water supplier may make a claim through the sheriff court to get a ‘decree’ against you. This is a court order which states what you owe and how it should be repaid. The supplier may then be able to take further action (diligence) against you. The types of diligence they can use are similar to those described in the earlier section  Summary warrants .

Gas and electricity arrears

If you were trading from home, still live in the same property and have the same supplier, you will need to treat gas or electricity arrears as a priority debt. This is because there is a risk to your energy supply being disconnected. Make an offer of payment to clear the arrears as well as paying your current bill. For more information, see our Gas and electricity arrears guide.

If you are threatened with disconnection or a prepayment meter at home for gas or electricity arrears from separate business premises, contact us for advice.

Debts to old business suppliers

If you have debts to businesses that used to supply goods and services to you, they could take further action against you to recover their money.

Debt collection agencies

Sometimes old suppliers will use a ‘debt collection agency’ to try to collect their money. A debt collection agency has no greater powers than the organisation you owe the money to. They have no right to come into your home. You can usually treat debts to old business suppliers as non-priority debts. Use your budget to make an offer of payment that you can afford. However, some debt collection agencies who collect old supplier debts may threaten to take court action quite quickly. 

Sheriff court action

Old suppliers may make a claim through the sheriff court to get a decree against you. This is a court order which confirms that you owe the money. It is the first step in them enforcing the debt against you using ‘diligence’. The supplier will usually send you a letter before they start court action telling you how to pay and how to contact them to discuss your repayment options. The types of diligence that can be used are the same as under the summary warrant route for debts to HMRC. See the earlier section Summary warrants .

Bankruptcy

If you owe money to your old supplier, they could apply to make you bankrupt. You must owe your old supplier at least  £5,000 for them to be able to do this. The process used is similar to that for HMRC debts. See  Bankruptcy  in the earlier section  What further action can be taken against me for debts to HMRC?.

Business rent arrears

You may have had a lease for business premises. A lease is a legal agreement, drawn up in writing, which allows you to occupy and use a property for a certain length of time. When you cease trading you may still be liable for ongoing rent and any arrears even if you have given up the lease and returned the keys to the landlord.

Monthly lease

If your lease runs from month to month, then you must give the correct period of notice before leaving. However, your liability usually ends when your lease finishes. Check the terms of your lease agreement.

Long-term lease

If your lease is over a period of years, you may be liable for the rent until the lease expires or a new occupier is found either by you or the landlord. Check the terms of your lease agreement.

If your landlord evicts you from the business premises, the lease will end and you will not be liable for ongoing rent and business rates.

If this not does happen, and you are liable for the ongoing rent, you may be able to sublet or ‘assign’ the premises. Check your agreement. The landlord should not normally ‘unreasonably refuse’ to let you do this.

Ask the landlord to let you surrender the lease. If the landlord accepts surrender of the lease they will be liable for business rates while the property is empty. Therefore, they are unlikely to agree unless they can easily find another tenant.

After you have stopped trading you can treat the rent as a non-priority debt and negotiate payments you can afford with the landlord.  Contact us for advice.

Equipment leases

You may have had an agreement with a company to lease equipment for your business. Check the agreement to see whether you have the right to keep the equipment at the end of the lease. You may have to keep paying for the equipment until the lease runs out whether you return the equipment or not.

Check with the leasing company if the debt will be reduced if you return the equipment. If you no longer need the equipment because you have stopped trading, you can treat this as a non-priority debt and negotiate payments you can afford with the company.

If you want to keep the equipment you have leased but cannot afford the payments, contact us for advice.

Permission to sell

It is a criminal offence to sell leased equipment without the permission of the company.

Accountants’ bills

If you have an accountant who usually deals with your tax returns, you may have a problem if you are not up-to-date with their bill. Sometimes accountants refuse to complete tax returns or give you back your books if they have not been paid. This can cause problems with HMRC if they have sent you an estimated tax bill that is too high.

  • If you cannot get your books back, try to give HMRC a summary of your trading figures from any papers you have.
  • Tell HMRC why you have no books. Ask them to accept your estimate even if you have no papers to prove your figures.
  • Try to negotiate with your accountant to give your books back. They may agree if they can see you are in no position to make any sort of payment to them or you may be able to make an agreement for a part-payment instead.

Bank and other credit debts

Any business overdrafts, loans and credit cards you have should normally be treated as non-priority debts. You can negotiate payments that you can afford using your budget. However, check that these debts have not been secured on any assets, such as your home. If you think you may have business debts secured on your home, contact us for advice.

Your creditors may use debt collection agencies to collect the money you owe. Debt collection agencies are not sheriff officers and they have no power to come into your property or to take your goods. You can negotiate payments with them in the same way as the original creditor.

If they are unhappy with your offer of payment, they could make a claim through the sheriff court to get a decree against you. For more information, see our Sheriff court action guide.

In certain circumstances, they may threaten to make you bankrupt. You must owe your lender at least  £5,000 for them to be able to do this.

Solutions to deal with my debts

See our Ways to clear your debt guide to compare:

  • how big or small your debts must be to use the available solutions;
  • what type of debt you can repay using each solution; and
  • how long each solution might last before you are debt free.

Useful contacts

Adjudicator’s Office Phone: 0300 057 1111 www.adjudicatorsoffice.gov.uk        

Business Debtline Phone: 0800 197 6026 www.businessdebtline.org        

HMRC Payment Support Service Phone: 0300 200 3835

HMRC Self Assessment Payment Helpline Phone: 0300 200 3822. 

Taxaid If you need specialist advice on tax and you are on a low income, you can phone Taxaid. Phone: 0345 120 3779 www.taxaid.org.uk 

Bankruptcy guide

Diligence guide

Gas and electricity arrears guide

Sheriff court action guide

Ways to clear your debt guide

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