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Sole traders services

Feeling financial pressure? Do you often wonder what restructuring options are available for a sole trader? We can help!

Being a sole trader

Being self-employed can be hugely satisfying and rewarding. You are in charge of your own destiny – the success or failure of your business is in your hands. You have independence, flexibility and you don’t have to answer to anybody.

But if you are a sole trader you’ll know it can also be a lonely existence. On a day-to-day basis, there is usually nobody to share your business problems and successes with, that is unless you employ people. Moreover, if you don’t work, you don’t get paid and that means no holiday pay too.

One of the biggest risks involved in being a sole trader is you are personally liable for business debts. This contrasts with businesses which operate as limited companies where the owners have the benefit of limited liability. Without the signing of personal guarantees, limited liability assures that the owners’ loss is limited to the amount of their investment.

As a sole trader, if your business runs into financial difficulty, what can you do? The simple answer is to take specialist advice from us as soon as possible.

Our advisers have a wealth of experience and will:

  • Identify what has caused the problem, perhaps a fall in sales, a bad debt, issues with profitability, etc.
  • Look for a solution. If the core business is sound it may just require re-finance.
  • However, things may be more serious. If you are facing threats with legal action or bailiffs, we can still help.

Avoiding Bankruptcy – what are your options?

Often, sole traders want to avoid going down the route of bankruptcy because they feel morally obliged to attempt to repay their creditors. Many also want to give the chance of losing their business, its assets and their home a wide breadth. There are several other options for you to consider if you wish to avoid the consequences of bankruptcy.

Time to pay arrangement

The time to pay arrangement is a government initiative. It was implemented in 2008 in an attempt to combat the effects of the recession. It allows struggling businesses to repay their outstanding PAYE/ NI or VAT liabilities in installments, rather than all at once. Usually, Time to Pay arrangements last either 6 or 12 months. However, they can last longer if there is a realistic prospect that the debt will be repaid eventually.

  • The cost of your liabilities will be spread out over a period of time rather than all at once. This will improve cash flow and ensure your business has money to pay rent, wages, and suppliers.
  • Opting for a time to pay arrangement will demonstrate a willingness to repay liabilities. This helps your business remain on good terms with HMRC.
  • Proactively seeking a time to pay arrangement will decrease the likelihood of HMRC taking enforcement action against your business.

A time to pay arrangement is ideal where tax arrears have built up as a result of a short-term financial difficulty. As well as being a viable option for sole traders, it can also be arranged for partnerships and limited companies.

Individual voluntary arrangement (IVA)

An IVA is a formal arrangement with your unsecured creditors. The proposal may be flexible depending on your circumstances. This often involves making regular, affordable payments over an agreed period, generally five years. In some situations, it may involve a lump sum payment or a combination of regular payments and then a lump sum. This could be a result of the sale of an asset or receipt of an insurance claim. Commonly, as part of the arrangement, the creditors may have to write off part of what is owing to them.

Secured creditors (e.g. your mortgage) are not included in the IVA. However, payments to them will be included in any calculations of what you can afford each month. Creditors may be suppliers who have given you credit. These could include your landlord for rent, HMRC for income tax or VAT or other business debts. It can also include personal debts such as credit cards, store cards or other consumer debt.

The proposal

A proposal outlines your income, expenditure, and why you are unable to fully repay the amount owing to your creditors. It will list your main assets and liabilities.

As a sole trader, your income may well be variable. Therefore, the preparing of financial projections is based on your estimates of income and expenditure. By using these figures, an affordable monthly payment will usually be agreed which will be shared amongst the creditors. They will vote to either accept or reject the proposal. Once agreed by 75% or more (by value) it is legally binding on all parties. During the term of the IVA, you have protection from further action from the creditors included in the proposal. This enables you to continue trading, earn a living and avoid bankruptcy.

Current PositionProposed Position
Personal Outgoings –Personal Outgoings –
Including Halifax Bank (mortgage)£1670.00Including Halifax Bank (mortgage)£1670.00
Business Outgoings –Business Outgoings –
Including HP (van)£2630.00Including HP (van)£2630.00
HMRC arrears payments£960.00*
Arrears payments to suppliers£950.00*
Credit cards£280.00*
Bank loan (unsecured)£540.00*
Store Cards£90.00*
IVA Payment£850.00*
 Total Expenditure£7120.00 Total Expenditure£5150.00
 Total Disposable Income-£1970.00 Total Disposable Income£00.00


* Consolidated into one IVA payment.

A plan, like the example above, would give you a viable mechanism to continue to trade. The basis of this is what your business can afford. There is a reviewing of figures annually taking into account any change in circumstances.

The term of an IVA varies but it is commonly spread over 5 years. In some instances, creditors could be fully repaid. In other situations, the proposal involves them accepting the need to write off a portion of the debt.


If your business is no longer viable and you owe money to creditors, the result could be bankruptcy. If any of your creditors are owed £5000 or more, they can instigate bankruptcy proceedings. You can also declare yourself bankrupt by applying to the court or online.

In most situations, this is financially the worst thing that can happen to an individual as:

  • It involves selling any valuable assets – possibly including your home
  • There will be a distributing of any proceeds after costs amongst your creditors
  • For a period (usually 12 months) restrictions apply which stop you from:
    • Acting as a director of a limited company
    • Borrowing more than £500 without disclosing your bankruptcy
    • Without the court’s permission, create, manage or promote a company
    • Managing a business in a name different to that under which you already trade without disclosing the bankruptcy
  • There will be a serious damaging of your credit rating
  • It will make borrowing either difficult or expensive


In some situations, depending on your circumstances, bankruptcy may be the most appropriate course to take. It is therefore essential that you take specialist advice before reaching a decision, so contact us without delay.

If you are a sole trader and have financial or cash flow problems, don’t ignore them. The problems will not disappear without you being proactive. We can help – whether it involves arranging finance or advising you about an IVA or bankruptcy.

Authored by Nick Wilson

Nick Wilson

Managing Director

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