What is a Business Debt?
- If you are self-employed, any money your business owes is known as a business debt.
- If you are a company director and have given personal guarantees on business loans then your business is liable to pay repayments, if your business fails, the repayment liability becomes your responsibility. Currently, there are two types of creditors, one who works under FCA regulation and the second who works under non-regulated financial products market.
- Business debts can be a priority or non-priority
- Priority creditors have stronger powers to get their money back than non-priority creditors.
Priority Business Debts
- Business rent arrears;
- Business rates;
- Income tax arrears;
- National Insurance arrears;
- VAT arrears;
- debts to major suppliers
- Self-Assessment Tax Arrears as a sole trader and company directors
- County Court Judgement Payment Liability
Non-priority Business Debts
- Bank loans
- Overdrafts and credit cards;
- Charge cards;
- Doorstep-collected loans;
- Payday loans; and
- Non-essential business suppliers
Taxes are dealt with and collected by HM Revenue and Customs (HMRC). There are different types of taxes. We have listed some of them here:
- Income tax: This is a tax you pay on the income you receive.
- National Insurance Contributions (NICs): These are paid to build up your entitlement to certain state benefits.
- Pay As You Earn (PAYE): HMRC uses this system to collect income tax and NICs from someone’s income at source if they work for an employer. If people work for you, you will have to take income tax and NICs from their earnings at source and pay this to HMRC.
- Value Added Tax (VAT): This is a tax charged on most goods and services that certain businesses provide.
Tax debts should be treated as priority debts. This is because HMRC has strong powers to collect the money from you.
For information on the rules about other types of tax, contact us for advice.
“TTP” is an arrangement to pay your tax bill back in installments after the date it was supposed to be paid. Ask HMRC for time to pay if:
- the tax demand cannot be challenged;
- you do not have grounds to ask for it to be remitted, and
- you cannot afford to pay it straight away.
Interest and Penalties
If you send in your income tax return late or pay the debt late, penalties can be added to what you owe. HMRC will not add penalties to your debt where a time-to-pay arrangement is made before the penalties would have been applied, as long as you keep to the arrangement.
Penalties for missed Income tax filing deadline are as follows:
1 day: £100.00
At least 3 Months: £10 per day or £900.00 maximum
At least 6 Months: 5% of the total debt or £300.00 whichever is higher
At least 12 months: 5% of the total debt or £300.00 whichever is higher. In some cases, it can be 100% of the total tax debt liability.
Penalties if you pay your income tax late are as follows:
30-day delay: 5% of the total debt
6-months delay: 5% of the total debt you now owe including penalties above
12-month delay: 5% of the total debt you now owe including penalties above
Debt Enforcement – Business Debt
If you do not make an agreement with HMRC to repay your tax debt, your case will be transferred to the debt management office of HMRC and HMRC’s local office. The HMRC debt management office will consider different ways to collect/recover the debt from you.
Some of the actions HMRC can take are as follows:
- Debt Collection agency
- Bailiff action
- County Court Judgement and bankruptcy proceedings
- Direct payment collection from your business and personal bank account
- Magistrate court action
- Use of Field collects officers
If you are no longer trading but still have outstanding business and personal debts, you can call for advice about how to deal with your business debts.
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 given 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”.
For any further advice and debt solution, please call our office on 0203 318 0990.