Is Debt Management suitable if Self Employed
If you are self employed or run a sole trading business there is nothing to stop you using a Debt Management Plan (DMP). If you are struggling with debts to banks or suppliers that you have taken in either your name or your business name they can all be included in your Plan. Because the Plan is an informal agreement you can negotiate with your creditors yourself or use a debt management service to help you.
If you are Self Employed can you leave any of your debts out of your Plan?
Because a Debt Management Plan is an informal solution you do not have to include all of your debts. As a self employed person you might have both personal and business debts. However it may be difficult to run your business without some credit facilities such as your business overdraft or accounts suppliers.
If this is the case you can include all of your personal debts within a DMP thus reducing the payments you make towards these but exclude one or more of your business debts. You then continue to pay these normally out of your business income thus preserving these facilities.
DM4U Tip: Generally speaking you should include all the debts you owe in your Debt management Plan. This is because it may be more difficult to negotiate with the included creditors if they can see one or more has been left out. In addition you have to find sufficient cash to pay the debts you do not include. As a self employed person you may be able to overcome these problems by paying the debts you leave out with business income.
Can you use a Debt Management Plan if self employed and you owe money to HMRC?
One of the downsides to using a Debt Management Plan if you are self employed is that there are certain debts that cannot usually be included. One of these is HMRC debt. This is debt such as personal tax or VAT arrears which is commonly outstanding if you are a sole trader.
If you owe money to HMRC they will often agree to give to time to pay. However they will not normally be prepared to wait for more than 12 months for their debt to be repaid. Because your Plan is likely to last far longer than 12 months HMRC will normally reject a DMP proposal which includes their debt.
DM4U Tip: This does not mean that you cannot use a Plan for your other debts. You can still do this but you will need to make a separate payment agreement with HMRC to ensure that the debt you owe them is paid within 6-12 months. If this is not possible then it might be best to consider an alternative debt solution which allows HMRC debt to be included.
What affect will a Debt Management Plan have on your business bank account?
As a self employed person it is common to have a business bank account with the same bank as your personal account. If this is the case you will need to be very careful about starting a Debt Management Plan which includes any debts owed to your bank.
If you are planning to include debts owed to your bank this may put any business account you have with the same bank at risk. This is because of the banking offset rule. This rule means that the bank can withdraw funds from one account you hold with them to pay arrears on other accounts. As such without warning the bank could withdraw funds from your business account to pay off personal debts which you included in a DMP.
The only way to overcome this problem is to make sure that you open a new personal and business bank account with a different bank before you start your Plan. If you have a poor credit rating it might be difficult for you to open a new business bank account. The way around this is to open a new personal account which you then use this for your business transactions. You will not be offered credit facilities but at least you will be able to separate your business and personal transactions which is very important if you are self employed.
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