With sole traders, there is a difference in that the sole trader isn't a separate entity to the company. This means that in this circumstance it will usually become a personal insolvency issue rather than a business insolvency issue. The sole trader will be entirely responsible for the business debts because the business and the sole trader share their finances.

A sole trader's business can become insolvent over time, especially due to not being able to pay creditors, not being able to sell stock and high outgoings compared to profit. If there is insufficient money to pay day to day business expenses then the business won't work. Sole traders can also find themselves out of work for long periods due to circumstances they have no control over such as sickness or low custom.

 It is very important, if you find yourself getting into this position, that you seek insolvency help from a professional because if your business becomes insolvent, as a sole trader, you will have the business debts added to your own personal debts and you may even find yourself in the position of having to go bankrupt.

There are options for sole traders who become insolvent. One of these options is an Individual Voluntary Arrangement or IVA for short. This is a legally binding agreement that usually lasts around 5 years. It is negotiated with the creditors and a monthly amount is agreed that is shared between the creditors. After five years, the rest of the debt is usually written off. An Insolvency Practitioner is responsible for setting this up for an individual. An IVA would improve cash flow for the sole trader, enabling them to better afford their debt repayments. It would also enable the sole trader to keep trading if they thought that would be financially viable.

There is a risk for sole traders of enforced bankruptcy. This is where a creditor who is owed £750 or more and has not managed to recover the money from a County Court Judgement, can petition for the sole trader's bankruptcy through the court. It has now become usual for HMRC to choose this option when trying to recover tax and National Insurance debts. There may still be the option for a sole trader to negotiate an IVA in this circumstance so it is worth them talking to someone to see where they stand.

If your business is struggling with debts and you are unsure of your financial future then you can talk to us for advice by filling in this online form. You can also call us or whatsapp us and someone will give you a call as soon as they are free to discuss your circumstances and advise you on your options.