Financial Options for Contractors is a follow-up article to our one entitled “What to do when you’ve no job or money and owe a fortune”.
The financial options are not as bleak as it seems when you are up against the wall, when you have no job, when your house and car have been repossessed, when your life partner has departed, and when you have huge debts to manage on your own. Although I must confess it seems so.
You have the opportunity to start afresh, perhaps with a new and better partner. Although you currently have no job, typically, once the upturn starts (which has always come in the past), you will be back in work again, earning more money than you did before. Your financial options are not so bad.
First, though, you have to sort out your current crisis. The most important person, as regards your financial options, to you during this period is your accountant. He or she has seen this situation many times. Whereas this is your first (hopefully). He’ll know what the best financial options are for you.
Here are some of them of the financial options open to you:-
1) Shut Down Your Company
Except for your personal taxation, it is your company that owes the money and not you. These are not your personal debts. It is a company of limited liability that you have. If the company is not able to trade profitably, then you can close it down. This happens to many other businesses which can no longer function profitably.
You should remember though, that you can only do this a certain number of times before they try to bar you as a director.
2) Get Rid of Your Debts
Obviously your personal debts and personal taxation cannot disappear with your company. As my accountant said though (see previous article), the options for those chasing you for money are limited. They’ll probably take what they can get.
As far as you are concerned, there are two main financial options. There’s the nuclear option of going bankrupt, or the tactical option of an Individual Voluntary Arrangement.
a) Financial Options – Bankruptcy
Many people still feel that there is a stigma about being a bankrupt. It’s better than having a debt of a hundred grand and a permie job of £19,000 a year though, as one of those who wrote to us had.
As a bankrupt, there are things that you won’t be able to do. For instance, while you are still a bankrupt, you cannot be the director of a company. You also cannot open an account or to have a credit card. You can imagine how difficult that can be in this day and age.
Those with a partner will find it much easier as the partner does not have a ban from any of the above. It would be a lot more difficult for someone, who is single, although, as ever, there are ways around it. I won’t name them here in case there is a crime of ‘incitement’.
You get a bankruptcy discharge after a few years (I think it’s three) and then you can get on with your life normally. You can still work during the time you are a bankrupt, but you just cannot be a director of a company.
b) Financial Options – Individual Voluntary Arrangement
This is normally the preferred route that accountants recommend. It depends on whether you have any money left at all. An IVA is where you gather your creditors together and make them an offer as regards the money that you owe them. Your accountant will advise you on what sort of offer to make.
It can be as little as 10p or 15p in the pound for all of your debts. In other words, if you owe an unpayable £50,000, you can offer to pay £5,000 to £7,500 in an Individual Voluntary Arrangement with your creditors. All of your creditors have to agree to it. HMRC almost certainly will agree to it, providing they are convinced that this is all that you have and you are not hiding funds anywhere.
Always tell them the truth and you’re highly unlikely to go to gaol. The only reason that Lester Piggott went to gaol was that he signed a statement saying that he had no further funds and then they discovered a £3 million bank account in Switzerland.
It is important for you to take this step though, whilst you still have funds left. Don’t wait till they’re all gone or you are facing bankruptcy.
The advantage of the IVA is that your debts are all gone, and you can start life afresh straight away, without waiting for a few years, as you would with bankruptcy.
Financial Options for Contractors
So, those are your financial options.
The crucial thing though for contractors is to keep in touch with your accountant. Don’t hide from him, even If you owe him money too. He knows your situation and he knows that he is more likely to get his money from you if he is able to help you sort out your problems.
He has also been through the process many times before, and as this is your first time you should use his expertise. It will be the best few hundred quid you ever spent.
If anyone else has any advice for contractors down on their luck, or is in the same boat themselves, please contact us or add your comments below.
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