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When running a business, your goal is to thrive and prosper. Taking out loans and other types of credit card debt can be a risky strategy but could effectively allow your business to grow in the long term.

However, sometimes in business, some things happen beyond your control. Changes in the economic environment can negatively impact your business, and as your costs start to outweigh your profits, you are left with a mountain of business debts to pay off.

Business tax, utility bills and rent arrears can be just some of the types of business debts discussed in this guide. We will also explore what causes business debt and what debt solutions offer to get you back to rerunning your business.

What types of business debts are there?

HRMC Debts

HRMC are responsible for collecting Income Tax, National Insurance and VAT (Value Added Tax). This type of debt for a business is a priority debt, so it is essential to act immediately if you find yourself in debt with any of these. Read our section on how to deal with business tax debt below.

The HRMC can act more swiftly than other creditors, and there are ways in which they can legally recover the money owed to them.

Business Rates Debts

Business rates are taxes which you must pay to the Council. It is vital that if you have ceased trading, then you tell them immediately. Just like HRMC debt, business rates are classified as priority debts, so it is crucial that if you do find yourself in arrears that you contact the Council and agree on a payment plan with them to pay it off. However, there are ways in which you might be entitled to ‘relief’ from your business rates, so it would be worth checking if this is the case.

Business Gas, Electricity and Water Debts

Gas, electricity, and water are essential in running your business. If you have debts regarding gas and electricity from your business premises, this debt can be assigned to your home account if your accounts are in the same name and provided by the same supplier. As a result, the energy suppliers have the right to disconnect your supply, so it is crucial to prioritise this debt.

This is treated slightly differently for water arrears as your water can no longer be disconnected from your home. Still, they can get a CCJ (County Court Judgement) out against you again, treat the bill as a priority and build it into your budget.

Business Suppliers Debts

Business suppliers are companies that provide goods and services to your business. Although it is essential to pay your debts on time as this could sever relationships with your suppliers, businesses often see this as not as necessary as the other debts above. This is because your suppliers can use debt collection agencies to recover the money. However, they do not hold the same power as the HMRC or Council in demanding payment on the arrears.

What causes business debt?

When running a business, you want to show yourself and others that the money you have invested proves to be successful. However, when your business starts to struggle, you often think that one big project or revenue stream will save your business from failing.

Increasing energy costs, changes in your market sector, and cancelled orders are just some things that can cause a business to get into debt. Instead, as a business owner, it is vital to take a proactive approach to run your business and get help when it is needed the most.

What should I do if my business is in debt?

Suppose you find yourself in a situation where your business has debt problems and is worried about bankruptcy or insolvency. In that case, it is crucial to take some steps before you look at alternative debt solutions available to you.

1. Contact your creditors

If you are struggling to pay your debts, then communication is vital. The success of any struggling business is tackling your issues head-on rather than burying your head in the sand.

Pick up that phone or send that email and see if you can speak to your creditors about coming up with a repayment plan to help you get out of this troubling scenario.

A CVA (Company Voluntary Arrangement) is similar to an IVA (Individual Voluntary Arrangement), which would allow you to settle your debts by paying back a share of what you owe into affordable payments. This would offer some breathing space to help you get back on your feet.

2. Reduce your business overheads

Reducing staff can sometimes be difficult for a business owner to perform. Still, unfortunately, if it means freeing up funds for your company to survive, this might be a viable option. Without risking the chances of bankruptcy, it is essential to do a health check on your company’s costs.

Other ways in which costs can be reduced, would be relocating your offices to somewhere more affordable. There are often coworking spaces or business hubs which offer more affordable and flexible rates.

3. Selling company assets

We are not talking about assets that are currently essential in running your business. Instead, it is time to sit down and inventory any assets you no longer have use of in the business. We often hoard a piece of equipment, hoping that it might come in handy for our business in the future. However, ask yourself. Do you need it? If this piece of equipment can free up that much-needed cash to pay off a creditor, then do this. Remember, one ‘man’s trash is another man’s treasure’.

4. Check that your bills are right

When your business is doing well, finance can often overlook specific bills. It might be that a supplier has mistakenly charged you more than they should have done, or HRMC is asking you to pay the incorrect amount. If this is the case, contact them and see if this mistake can be rectified as you may be due a refund.

5. Create a budget and stick to it

Most small businesses do not have a finance person who deals with money matters. A sole trader is often responsible for this aspect, and budgeting is often essential but gets pushed to one side when your business is prospering. However, what happens when your business needs the cash to stay afloat?

Working out your income against your monthly outgoings will help you plan for the inevitable. It will assist you in forecasting a contingency fund if things take an adverse turn in your business. A budget also allows us to look at ways of reducing unnecessary costs.

Who is responsible for the business debt?

The responsibility of your business’ debt depends on how the company is set up.

Sole Trader

If you are a sole trader, you will be personally liable for your business debts. As a Sole Trader, your business and you will be considered the same by your creditors, so if your business fails, you will be held responsible for its debts.


Business debts associated with a Partnership will be equally split between business partners. Each partner will be personally liable for the debts acquired.

Limited Company

If your business is a Limited Company, then any debts will be held against the company name, which will mean you will not be personally liable. If your creditors want to recover the debts your company owes to them, they would need to liquidate its assets.

What happens if I don’t pay my business debts?

Every debt is different, so instead of clumping them into one umbrella, we will split them into digestible chunks.

HRMC Business Debts

As discussed earlier, HRMC debt is seen as a priority debt, so paying this first is crucial. Below are some of the actions the HRMC can take to recover what is owed to them by you:

  • Send bailiffs to collect the debt

HRMC does not need a court order to visit your premises. Instead, they can take stock and equipment up to the value that you owe them. If you don’t have enough stock or equipment, then they can appoint bailiffs to go into your home and take assets from there. If you refuse, they can get a warrant to break into your property to obtain the goods.

  • Apply for a County Court Judgement

The HRMC could take a County Court Judgement (CCJ) out against you to recover your business tax debts. You will be sent some court forms, which you will need to fill in and offer an affordable monthly amount. If you don’t pay the CCJ agreed on amount, they can apply for a charging order against you.

  • Summon you to a Magistrates’ Court hearing

If you owe less than £2,000, the HRMC can summon you for a court hearing. In the hearing, you will need to come equipped with your business and household budget and an offer to your debt into affordable payments. Refusing or not doing this can land you in serious trouble and even imprisonment.

  • Obtain money from your savings

If you have savings in a bank or building society, HRMC can take the money out to pay your tax. This is only if you have debts of £1000 and you have savings of over £6,000.

  • Obtain money from your wages

Some people run a business but also are employed by someone too. HRMC can collect your debts by changing your tax code on your wages to increase the amount of tax deducted from your paycheck, which will assist in paying the deficit back to the HRMC. The HRMC can take up to £3,000 if you earn less than £30,000. If you make more than £90,000, they can take up £17,000 from your wages.

  • Look into making your Bankrupt

Bankruptcy is seen as a last resort; however, sometimes, it is the only viable option. If you owe more than £5,000, HRMC can start bankruptcy against you. You can find out more about bankruptcy by visiting our bankruptcy page.

Business Rates Debts

Business rates debt is classed a priority debt. The Council should send you a reminder letter telling you that you have fallen behind on your payments in the first instance. If this letter is ignored, then they can use the following options to recover the debt:

  • Send the bailiffs

The Council can ask the bailiffs to come round to come and collect goods from your premises or home; however, the goods need to be associated with your trade. They cannot force entry into your property, and you can choose not to let them in.

  • Take you to Prison

Prison seems like a scary prospect, but if the Council has used bailiffs, they can contact the Magistrates’ Court and ask for a ‘means enquiry’ to see if you can pay off the debt in instalments. If you do not pay the amount ordered, you will usually have to go to court, which could land you in jail.

I need help and advice with my business debts. Where can I get it from?

Admitting you have a debt problem and need help is the first step to building a positive future again. If you are a sole trader, partnership or a limited company and are struggling with debt, then don’t suffer in silence. Get the right help and solutions to help you take control of your financial situation.

Please speak to our advisors, as we can talk you through some of the debt solutions that may be available to you to consolidate your debt and ease the financial strain put on by debtors. We can help you put a budget and a plan together so that you can survive the economic turmoil and allow you to continue to run your business.

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