I closed my business down last year without declaring any earnings to HMRC. I had some money saved to pay an accountant once I sorted the paperwork out, but things have changed and I’m now on benefits. I have spent my savings and cant keep up with my Credit Card bills. If I were to file for bankruptcy, what would happen to the tax that I owe? do I still need to file my tax returns with an accountant? I can’t afford this.
First of all, has HMRC approached you for a payment? Do you actually owe anything? If you are not certain, call them and advise them of your change of circumstances. There are many people in the same situation and they have people who can help. If it turns out that there is a substantial payment due, you might consider bankruptcy or a Debt Relief Order (if the amount is below £15,000). A DRO is similar to a bankruptcy and is designed for vulnerable people on low or zero income. If a bankruptcy is unavoidable, you would need to pay the £525 Official Receiver’s fee, though you would be exempt from paying the £180 Court Fee. The good news is that you will be able to include any other unsecured debt in the DRO / Bankruptcy.
There are some things which may prevent you from getting a debt relief order. These include:
- if you are currently bankrupt
- if you have an Individual Voluntary Arrangement (IVA) or are applying for an IVA
- if the companies you owe money to (your creditors) have applied to make you bankrupt but the hearing hasn’t taken place. (If your creditors agree however, you may still be able to apply for a DRO.)
- if you have been given a Bankruptcy Restrictions Order or Undertaking
- if you have petitioned for bankruptcy but your petition has not been dealt with to date – unless the judge has referred you for a debt relief order instead.
- if you have already had a debt relief order in the last six years
- if you have been given a Debt Relief Restriction Order or Undertaking.
For more details on whether you can get a debt relief order, ask your authorised adviser.
To apply for a debt relief order, you need to meet certain conditions. One of these is that the amount of spare income you have each month – that’s after all your household outgoings – is £50 or less.
Your adviser will be able to help you take into account all the money coming into your household including things like your salary or wages, your benefit payments (like Jobseeker’s Allowance, for example), your pension, contributions from other members of your household and any rental income etc.
Once you’ve paid all your normal bills, if the figure left over is £50 or less, you may be able to apply for a DRO if you meet the other conditions.
Your authorized adviser will check your details to see if you meet the conditions to apply for a DRO. These are:
- you have qualifying debts of £15,000 or less (see below for what counts as a qualifying debt)
- you have £50 or less a month of spare income after paying all your normal household bills
- you own things of value or savings worth £300 or less
- your motor vehicle, if you own one, is worth £1,000 or less (unless you have a physical disability and it has been specially adapted)
- you have lived, had a property or carried on a business in England or Wales in the last three years.
A debt relief order (DRO) is an order granted by the Insolvency Service in cases where you can’t afford to pay off debts.
With a debt relief order, none of the companies to which you owe money (your creditors) can take action against you to get their money back. This lasts for as long as you have the DRO, which is usually about a year.
At the end of this time, all the debts included in your order are written off.
To apply for a debt relief order, you must have debts of less than £15,000 and a low income. As you cannot apply for a DRO yourself, you will need to contact an authorised adviser who will apply for a DRO on your behalf. First though, your adviser will check whether you meet the conditions. For example, you won’t be able to apply for a DRO if yoAu own things of value or have savings of over £300.
To proceed with an order will cost £90, but you can spread the cost of this over six months.
To find out more details about a debt relief order, please read on. Please note that a debt relief order is a cheaper option than going bankrupt, but there may be more ways to deal with your debts and your authorised adviser can provide further information about these other options.
If you are at the point where you realise that you need assistance because your company debt is at a level that you need assistance then we can help.
There are only 4 options to consider:
1. Do Nothing- Wait and see what happens and remain in survival mode until the outcome
2. Bankruptcy- We always suggest that bankruptcy is considered first as an option opposed to last. The reason is because if you have no assets, live in rented accommodation or own property where there is minimal equity, the bankruptcy is possibly the fastest way of eliminating unmanageable debts. It provides a fresh start t your financial life. We provide a pre bankruptcy counselling service.
3. Individual Voluntary Arrangement or Company Voluntary arrangement- This can be arranged 2 ways. Either an income based voluntary arrangement or an asset based IVA. The essence of these arrangements is to allow you to make a legal agreement with your creditors whereby you make an offer to your creditors. ( the people and organisations you owe money to) and make them an offer . Providing 75% of the total amount of debt agree to the proposal then the other 25% would have to go with the arrangement.
4. Informal agreement with creditors made on a one to one basis that resembles a commercial debt solutions plan.
Don’t be fooled by so called professionals enticing people into certain arrangements. It does happen and if you are unsure about what to do then please don’t rush into just anything because its easy! Remember it takes 5 minutes to sign up and commit to these agreements but its a lot harder to cancel them.