Self employed people (sole traders) are allowed to go bankrupt and continue to run their business. However there are various implications.
Included in this article:
- Can you be self employed if you are bankrupt?
- What happens to your work tools?
- Do you have to change your bank account
- What happens to your premises and employees?
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Can I still run a business while I am Bankrupt?
The affect of Bankruptcy will depend on the type of business you run. Can you continue to run your business if you are a sole trader? What happens if you are a Company Director? To find out more please visit: http://beatmydebt.com/bankruptcy-frequently-asked-questions/what-is-the-affect-of-bankruptcy-on-my-business
Can you go bankrupt if you are self employed?
As a self employed person or sole trader you are allowed to go bankrupt and continue running your business.
You must only trade under the name in which you went bankrupt. This will normally be your own name. If you have a trading name this can be used in advertising and business correspondence only if your own name is stated first.
In addition all debts in your name are included (including any business debts). You are no longer allowed to directly repay any debts you owe to trade creditors.
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What happens to your Work Tools?
Most hand tools that you use personally to continue the running of your business are exempt from Bankruptcy. You are allowed to keep these to enable you to carry on working as long as they are not of excessive value.
As such if you are a plumber you will be able to keep the tools in your van. If you are a web designer you will be able to keep computer equipment.
You can also keep a vehicle which you require to carry out your work even if it is worth more than £1000. Having said that a car that you use to drive to and from an office may be at risk unless it is worth less.
If you own machinery, plant or tools of excessive value you will have to buy these back from the Official Receiver or allow them to be sold if you no longer need them.
Do you have to change your Self Employed Bank Account?
Your business bank will find out that you are bankrupt even if you do not owe them money. Any current account you have with them is likely to be closed.
It is therefore likely that you will need to open a new account to run your business through. However there are very few banks which offer business facilities for bankrupt people.
Generally speaking the way round this is to open a normal current account in your name for business purposes. There should be no issue because you will not be applying for any credit facilities.
You will no longer be able to operate an overdraft facility or credit card. If you have been using these facilities to help with your cash flow then you will have to rethink your business strategy.
What happens to your Premises and Employees?
If you work out of a business premises it is important to understand that your current lease will be terminated on the date of your bankruptcy. You will then have to agree a new lease with your landlord.
Your landlord will therefore be made aware that you have gone bankrupt. As such if you are planning this course of action you should discuss it with your landlord beforehand so you can manage any concerns they may have.
If you have employees you will have to make them redundant on the day you go bankrupt. You can then re-employ them immediately if you need them. However they will be informed of your bankruptcy by the Official Receiver.
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I am bankrupt at the moment. Bankruptcy made July 2021. I am currently operating as a self employed sole trader. I want to know if I can a/ employ staff b/ engage self employed sub contractors
Hi TonyN
If your bankruptcy is registered in England / Wales, there is nothing to prevent you from hiring staff or using sub-contractors within your business while you are bankrupt. As long as you trade under your own name, you are free to carry on your business just as if you were not bankrupt. If you were made bankrupt in Scotland, I believe the same applies but I would advise you check with the AiB.
Hope this helps.
Hi. I was declared bankrupt in September 2021. I have just completed my self assessment year April 21/22. As this is under a new UTR number given to me after my bankruptcy, do I need to include figures/expenses that were before September 21 or do I only include my figures /expenses that occurred after 2021 using my new UTR ?
Many thanks
Hi Patrick
I am not sure if this is correct. Even though any tax due under your old UTR would be included in your bankruptcy, I have known HMRC to request a full tax return is completed. To be 100% sure I suggest you contact HMRC and confirm with them.
I’ve been made bankrupt but I’m unemployed. I’ve been offered a decent self employed job but will I end up paying any surplus income into the bankruptcy?
Hi Jay
If you start a self-employed job, you must tell the official receiver about it. They will then ask you to complete a new income and expenses questionnaire. And you are right, any surplus income you have as a result will have to be paid to the official receiver for 3 years.
But if you do all the figures correctly you may find that you actually have no surplus. The key to this is making sure you separate your business revenue and expenses from your personal income and expenses budget and getting all the figures correct.
Providing figures to the official receiver is not straightforward if you are self-employed. If it is not done correctly, you can easily end up paying way too much.
If you would like more advice on this, give me a call (0800 077 6180). In the mean time, you will find this article useful: Bankruptcy spending restrictions guide