Business Debt Advice

Here at Company Debt we are one of the UK’s foremost specialists in dealing with business debt. In particular, we specialise in helping directors of limited companies through challenging circumstances, always seeking to find the best possible solution.

In this article, we’ll explore the issue of business debt, and what to do about it.

What Constitutes a Business Debt?

For the purposes of this article, we’ll define business debts as those specifically those incurred by a limited companies or partnerships.

If you are a sole trader, the law sees no difference between your money and that of your business. There is no clear legal separation between you and your business, hence even though you’ve incurred it via your work it classifies as personal debt.

Limited companies, however, benefit from the legal seperation provided by the Ltd company structure, meaning the debts belong to the company and not the individuals.

How can a business get out of debt?

Businesses which are in debt have several options, as outlined below

  • Apply for Finance – If it’s an option for you, finance may be the best way to pay creditors off and pay back what you owe over a measured period.
  • Ask HMRC for a Time to Pay Agreement – If the debt is to HMRC, they may be open to a time to pay agreement, which is a monthly payment instalment plan.
  • Company Voluntary Arrangement – A CVA is a formal agreement to repay business creditors which is negotiated by an insolvency practitioner. Creditors must vote to accept the proposed terms.
  • Consider Voluntary Liquidation – At a certain point, debts may become intolerable and force you into liquidation. Choose this voluntarily before an angry creditor forces it with a Winding up Petition is the better course of action, retaining more control for company directors.

Are you Personally Liable for Business Debts?

While the limited company structure is designed to prevent personal liability, there are some exceptions where a director may be considered personally liable.

Some examples of this are as follows:

  • where a director has signed a personal guarantee document
  • If a director has engaged in wrongful trading, i.e. knowingly continued trading after the point of insolvency
  • if you’ve tried to sell company assets at a falsely low price
  • if you have an overdrawn directors loan
  • If you’re engaged in fraudulent or criminal activity

Priority vs Non Priority Business Debts

Of course paying everyone is important, but it’s possible to classify some business debts as more urgent than others based on their likelihood to threaten you with a statutory demand.

Priority

  • Income tax
  • National Insurance
  • Paye
  • Business rent
  • Business rates
  • Debts to Your Suppliers
  • Bills to Accountant

Non Priority

  • Overdrafts
  • Credit Cards
  • Catalogues
  • Payday loans
  • Non essential business suppliers

Is HMRC a priority debt?

HMRC debt is certainly classed as a priority. The fact that HMRC are the single largest issuer of winding up petitions, the ultimate threat any limited company can face, tells you they mean business when it comes to collecting what is owed them.

One other factor reinforces this, further seperating HMRC from other creditors. This is the fact that winding up a company which owes them money is not always done on the basis of recouping money. HMRC will sometimes wind up companies purely on the basis of making an example, even if it costs them money.

How do HMRC Deal with Debt?

HMRC are the UK’s biggest creditor and, as such, have a very refined system of escalation when it comes to business debt.

If you’re a business owner unable to make payments to HMRC the first piece of advice is to keep regular and open communication with them at all times. Nothing with speed the escalation more than putting your head in the sand and pretending the situation will go away.

HMRC will start with threatening letters, then move to a debt collection agency. An Enforcement notice will follow followed by bailiffs turning up at your place of business. Finally they resort to legal action and a winding up petition which will force your business into compulsory liquidation.

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