Managing Business Debt: A Guide for Self-Employed People

The Accounted Business Team·2 March 2026·8 min read

Debt is one of the most stressful things a self-employed person can face. When you are employed and you have personal debt, it is hard enough. When you are self-employed and your business debt is tangled up with your personal finances, it can feel overwhelming.

The good news is that most business debt is manageable if you face it head-on, understand your options, and take action early. The worst thing you can do — and the thing most people do — is ignore it and hope it goes away. It will not.

This guide walks through how to prioritise your debts, what to do about an HMRC bill you cannot pay, how to negotiate with suppliers, and where to get free help.

Step 1: Face the Full Picture

Before you can manage your debt, you need to know exactly what you owe, to whom, and on what terms. Many people in debt avoid looking at the total number because it frightens them. But you cannot solve a problem you refuse to measure.

Make a list. For every debt, write down:

Who you owe: HMRC, credit card company, supplier, bank, landlord
How much: the total outstanding balance
Interest rate: what it is costing you to carry this debt
Minimum payment: what you must pay each month to stay compliant
Consequences of non-payment: what happens if you miss payments

Once you have the full list, total it up. This is your starting point. It might be uncomfortable to look at, but it is essential.

Step 2: Prioritise Your Debts

Not all debts are equal. Some carry severe consequences for non-payment, while others are more flexible. Prioritise based on the consequences of not paying, not on the size of the debt.

Priority Debts (Pay These First)

HMRC: tax debts are priority debts. HMRC has significant powers to enforce collection, including:

Adding interest and penalties to your outstanding balance
Taking money directly from your bank account (Direct Recovery of Debts)
Using debt collection agencies
Making you bankrupt for debts over £5,000
Taking enforcement action through magistrates' courts

If you owe HMRC money, this should be at the top of your list. The penalties for ignoring a tax debt escalate quickly, and HMRC has more enforcement power than almost any other creditor.

Rent or mortgage: losing your business premises or your home has obvious catastrophic consequences.

Utilities: electricity, gas, water for your business premises. Disconnection can prevent you from working.

Council Tax: falling behind on council tax can result in enforcement action surprisingly quickly.

Secondary Debts

Suppliers: important for your business relationships, but most suppliers would rather negotiate than lose a customer entirely.

Business loans and credit cards: these carry interest, but the consequences of short-term arrears are less severe than priority debts. The lender will charge default interest and may restrict your credit, but they cannot make you bankrupt for missing one payment.

Hire purchase and leasing: important if the agreement covers essential equipment, as the finance company can repossess the asset.

Step 3: Deal with HMRC First

If you owe HMRC money and cannot pay in full, the most important thing to know is that HMRC would rather get paid slowly than not at all. They have a formal process for this called a Time to Pay arrangement.

What Is Time to Pay?

A Time to Pay (TTP) arrangement is an agreement between you and HMRC to pay your tax debt in instalments over a period of time. You still owe the full amount, and interest continues to accrue, but HMRC agrees not to take enforcement action as long as you stick to the payment plan.

How to Set One Up

For debts up to £30,000: you can set up a payment plan online through your HMRC online account without speaking to anyone. This is the quickest option. You can spread the payments over up to 12 months.

For debts over £30,000 or longer payment periods: you need to call the HMRC Payment Support Service on 0300 200 3835. Be prepared to explain your financial situation and what you can realistically afford to pay each month.

What HMRC Will Want to Know

Your total income and expenditure
What assets you have (savings, property, investments)
Why you cannot pay in full right now
What you can realistically afford to pay each month

Be honest. HMRC deals with thousands of TTP arrangements every year. They are experienced at assessing affordability and will spot unrealistic proposals. It is better to propose a payment amount you can definitely afford than to agree to something ambitious and then default.

Tips for a Successful TTP Arrangement

Call early: do not wait until HMRC starts chasing you. Contacting them before the payment deadline shows good faith.
Have your figures ready: know your income, expenses, and what you can afford before you call.
Be realistic: a payment plan you can actually stick to is infinitely better than one that falls apart after two months.
Keep all your other tax affairs up to date: HMRC is much more likely to agree to TTP if your Self Assessment returns are filed and you are compliant in all other respects.
Stick to the plan: if you miss a payment, the TTP arrangement may be cancelled and the full amount becomes due immediately.

Interest on Late Payment

Even with a TTP arrangement, HMRC charges interest on late-paid tax. The current late payment interest rate is the Bank of England base rate plus 2.5%. As of early 2026, that is approximately 7%. This interest is calculated daily on the outstanding balance.

This means it is still in your interest (literally) to pay your tax debt as quickly as you can, even within a TTP arrangement.

Step 4: Negotiate with Suppliers

If you owe money to suppliers, open communication is almost always better than silence. A supplier who hears nothing from you will assume the worst and may escalate to debt collection. A supplier who receives an honest phone call and a realistic payment proposal will usually work with you.

How to Approach the Conversation

Be honest: "I am having cash flow difficulties and I cannot pay the full amount right now."
Propose a specific plan: "I can pay £200 per month until the balance is cleared."
Ask about options: some suppliers will offer extended terms, pause interest, or accept a settlement for less than the full amount if it means getting paid.
Get the agreement in writing: whatever you agree, confirm it in an email so there is a clear record.

Most suppliers are small businesses themselves. They understand cash flow problems. What they do not understand or forgive is being ignored.

Step 5: Understand Personal vs Business Debt

As a sole trader, the distinction between personal and business debt is blurred because you and your business are legally the same entity. A creditor of your business can pursue your personal assets, and vice versa.

This has important implications:

Personal savings can be used to pay business debts: HMRC and other creditors can pursue your personal assets to recover business debts.
Business difficulties affect your personal credit rating: if your business debts go to collection or court, it is your name on the judgment.
Bankruptcy affects both: if you are made bankrupt because of business debts, it affects your entire financial life, not just the business.

This is one of the reasons some sole traders choose to incorporate as a limited company. A limited company provides a legal barrier between business debts and personal assets (though personal guarantees on loans can override this).

Signs of Trouble

Debt problems rarely appear overnight. They build gradually. Recognising the warning signs early gives you more options and more time to act.

Warning Signs

You are regularly using credit to pay for day-to-day business expenses
You are only making minimum payments on credit cards and loans
You are borrowing from one source to pay another
You are falling behind on tax payments or not setting aside money for tax
You are avoiding opening post or checking your bank balance
You are losing sleep over money
You are delaying paying suppliers beyond agreed terms
Your personal expenses are being funded by business borrowing

If you recognise several of these signs, take action now. The earlier you address debt problems, the more options you have.

Where to Get Free Help

You do not have to deal with debt alone, and you do not need to pay for advice. Several organisations in the UK provide free, confidential debt advice.

StepChange

StepChange is a charity that provides free debt advice and debt management plans. They can help you assess your situation, prioritise your debts, and negotiate with creditors on your behalf. Call 0800 138 1111 or visit stepchange.org.

Citizens Advice

Your local Citizens Advice bureau can help with debt issues, including advice on dealing with bailiffs, understanding your rights, and accessing support. Visit citizensadvice.org.uk or call 0800 144 8848.

Business Debtline

Business Debtline is specifically designed for self-employed people and small business owners with debt problems. They offer free telephone advice and online tools. Call 0800 197 6026 or visit businessdebtline.org.

National Debtline

National Debtline provides free advice on personal debt. If your business debts have become intertwined with personal debts (as they often do for sole traders), they can help you navigate both. Call 0808 808 4000 or visit nationaldebtline.org.

Insolvency Service

If your debts are severe and you are considering bankruptcy or an Individual Voluntary Arrangement (IVA), the Insolvency Service provides information and guidance at gov.uk/government/organisations/insolvency-service.

A Word on Shame

Debt carries a huge stigma, and self-employed people often feel it more acutely because they take personal responsibility for their business decisions. It is worth saying clearly: getting into debt does not make you a failure. Economic conditions, late-paying clients, unexpected expenses, health problems, and a hundred other factors can create debt situations that have nothing to do with poor judgement.

The measure of a person is not whether they encounter financial difficulty — it is how they respond to it. Facing the problem, making a plan, and asking for help when you need it are signs of strength, not weakness.

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