Self employed business debt: A Beginner’s Guide

Self employed business debt: A Beginner’s Guide

Running a self employed business is different to a limited company. If you borrow on behalf of the business and it subsequently can’t pay what it owes, you are personally liable for the debt.

Included in this article:

Need assistance with your self employed business debt? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.

The difference between self employed and company debt

If you run a business which is not a limited company you are classed as self employed.

You may be working on your own (a sole trader) or employ other people. You might also be using a trading name which is different to your own.

However, there is a big difference between your operation and a company. This is that as a self employed person you and your business are the same legal entity.

In terms of business debt, this is an extremely important difference.

Where you have borrowed money or taken any form of credit on behalf of the business, you are personally liable for repaying it. In other words, the creditors can take legal action against you personally to recover what they are owed.

Struggling to get your head round all of this? We can help. Call us (0800 180 8440) or complete the form below. The advice is free and confidential.

Personal liability a for self employed bounce back loan

Your self employed business might have taken a Bounce Back Loan (BBL). These loans were guaranteed by the government.

Given this, you might be thinking that if the business can’t repay it, you will not be liable. Unfortunately this is not the case.

The Government guarantee was for the protection of the banks, not you.

You are personally liable to repay 100% of any outstanding Bounce Back Loan your business is unable to repay.

If you are struggling to pay the loan, you can ask the bank for help. They might be able to give you a payment holiday. Alternatively, they might allow you to pay interest only payments for a period of time.

Where the options offered by the bank will not resolve the problem, you need to consider using a personal debt solution. More information about these options can be found below.

The Government will only refund the bank for an unpaid bounce back loan after it has exhausted all options to enforce the repayment of the debt against you.

Solutions for dealing with self employed debt

The issue you face when running a self employed business is that you are personally liable for any business debt. Unlike a limited company, you cannot just stop trading and walk away.

Where you find yourself unable to repay the money owed, there are some personal debt solution options that are available to help you. The main ones are as follows:


An IVA is an agreement to repay as much of your debt as you can over a fixed period of time.

Normally, using this solution means you make an affordable monthly payment covering all of your debts for 5-6 years. At the end of this time any balances still outstanding are written off.

When it is agreed, your creditors can’t take further enforcement action against you or your property. They also have to stop all additional interest charges.

You can have an IVA if you run a self employed business. Any debt you owe to HMRC can be included.

An IVA is a sensible option if you took a Bounce Back Loan and spent the money on yourself. In these circumstances you will need to avoid going bankrupt as your actions could be seen as fraudulent. You would then still be personally liable to repay the debt.

Want to start an IVA to manage your debt? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.

Go bankrupt

Going bankrupt can be a sensible solution if you have little or no surplus income. In these circumstances, you will not have to make any more payments towards your debts.

After 1 year, all of your unsecured personal and business debts are written off. This includes any money you owe to HMRC.

In addition, you can continue working on a self employed basis. You are allowed to run the same business or a different one if you want.

However, bankruptcy normally has to be avoided if you are a home owner. This is because your property could be at risk of being sold especially if there is any equity in it.

Going bankrupt may not be an option if you took a Bounce Back Loan and spent the money on yourself. Talk to use for more advice (0800 180 8440).

Debt Management Plan (DMP)

A debt management plan (DMP) is an informal agreement with your creditors. It allows you to reduce your monthly debt repayments to an affordable monthly amount.

The major disadvantage of this solution is you have to keep up your payments. You remain in debt until the money you owe is paid in full or can be settled. This can take many years.

However, it is also a flexible debt solution. You are largely in control of what you pay into the plan. If you start to earn more you can pay more or use the extra cash for other things.

There are some downsides to a debt management plan for self employed people. A significant one is that it is not normally possible to include HMRC debt.

Can you carry on trading while in debt?

As a self employed person, you are personally liable for your business debt. That said, if you can’t pay and need to use a debt solution, you can carry on working.

You are allowed to continue with your self employed business if you are in an IVA. You can also do so if you have gone bankrupt.

However, one of the problems you will face is that it will be difficult to get credit. This is because your credit rating will be poor.

You may no longer have access to a credit card. In addition, suppliers may require payment on delivery rather than offering you a credit account.

Will you have to change your business bank account

You may face a problem with your banking facilities when dealing with self employed business debt.

If your business owes money to the bank, the debt will normally be included in the debt solution you chose.

However, this may lead to the bank closing your account. You will need to be prepared for this and so should move your account.

Generally speaking. opening a new bank account for your business is not a big issue. There are a number of banks which offer business accounts even if you go bankrupt.

You will generally be able to get a basic account for both your personal and business requirements. These accounts come with all the facilities you need such as a debit card and internet banking.

Want help to solve your self employed business debt? Call us (0800 180 8440) or complete the form below. The advice is free and confidential.

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