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Can business debts affect my personal finances?

Can business debts affect my personal finances?

For the nation’s self-employed, debts and money worries can become a major worry. When you don’t have a salary to rely on each month, it can be a lot harder to plan financially.

But can business debts actually affect your family finances? In short, it depends on the type of structure you’re using.

Limited companies

Many self-employed people will operate through a limited company. This offers a lot more protection against business debts. You are an employee of your own company, which means that if you are unable to pay the business debts you're not personally liable. The only exception is if you have signed a personal guarantee. Of course if the debts of the limited company mean assets are sold or the revenue stream cannot be guaranteed, this could have an impact – but you are not directly liable for debts accrued by your own limited company.

Sole traders

Sole traders are in a much more precarious position when it comes to business debts. There is no real legal structure in place which means you are personally responsible for business debts. If you can’t afford to repay them, your personal assets and income could be at risk. In extreme cases you could lose your home if you cannot pay off the business debts.


Partnerships are slightly different to sole traders, but the personal liability remains. Partners are jointly and severally liable for all debts. If one partner goes bankrupt or absconds the remaining partner(s) are liable for the entire debt, not just a portion of the total.


Self-employed tax is a huge and complex area that would require pages and pages of text to cover. But, in short, if you or your business is struggling to meet tax bills, National Insurance contributions or VAT liabilities, it’s vital to get in touch with HM Revenue and Customs (HMRC) immediately to explain and work out a repayment plan.

The taxman can recover the unpaid tax without having to get a court order first. So it could take your van, business property or even your laptop, effectively crippling your business’s ability to continue trading, which could make any existing personal debts a lot worse. 

Whether a sole trader or operating through a limited company, the message here is the same. HMRC may start bankruptcy proceedings against you if you owe as little as £750.

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