This page is your guide to Scottish trust deeds for self-employed sole traders and for owner-managers of small limited companies (who may also be company directors).
People who operate their own business are especially exposed to debt problems. The risks involved have been highlighted and further magnified during the Covid pandemic. Variable personal income and business disruption can both easily result in the use of personal credit during tough trading periods.
Thankfully, operating a business does not prevent you from taking steps to tackle your debts. However, there are some additional factors that you should take into account which we explain in greater detail below.
For expert personal debt advice, please contact us.
It certainly is possible to use a protected trust deed in Scotland if you’re either self-employed or a company director. Our advice team has successfully assisted many sole traders and directors to enter trust deeds.
A trust deed runs for a minimum of four years during which you’re expected to repay what you can reasonably afford. Once you have completed your agreed obligations, you’ll get discharged from the trust deed and any remaining debt gets written-off.
In general terms, entering a protected trust deed in Scotland does not stop you from being a company director (despite what you might have read on some other websites).
Every limited company has a set of rules that govern how the firm must be operated. These rules are known as the articles of association and in some (but not all) cases they include a rule that prevents an “insolvent” person from being a director of the company. A Scottish trust deed is a type of personal insolvency.
It is possible (if you have control of a firm) to change the articles of association to solve this potential problem. A skilled insolvency adviser can help you to amend your company’s rules so that you can enter a trust deed while continuing to your business.
Before you sign a Scottish trust deed, your personal assets are assessed and (if appropriate) they are valued. This most commonly applies to your home (if you are a homeowner) and to your vehicle. If any of the assets must be taken into account by your trustee, a plan of action will be agreed and documented before your trust deed begins.
If you’re self-employed, the “tools of the trade” that you own are unlikely to be put at risk. There’s usually no benefit to your creditors if assets that you rely upon to make a living get taken from you. You will discuss this subject with your trustee, and document the outcome, before you go ahead with your trust deed.
If you own and operate a small limited company, your shares in the company are unlikely to be put at risk. You and your creditors will usually have a mutual interest in your business performing well. You will discuss this subject with your trustee, and document the outcome, before you go ahead with your trust deed.
A protected trust deed will cover your personal liability for a government-backed Coronavirus business loan. For example, a self-employed sole trader’s bounce back loan is treated just like their other qualifying debts when using a trust deed in Scotland.
HMRC tax debts that you personally owe also qualify as a creditor in your protected trust deed. This includes HMRC tax debts like income tax, national insurance, and VAT. Some accounting work may be required to assess your precise tax liability at the point of signing your trust deed.
There’s no absolute guarantee that any creditor will accept a trust deed; each has a vote to determine whether your trust deed will become protected. It is however known that HMRC can be less flexible than regular consumer credit lenders, such as credit card issuers for example.
An experienced insolvency adviser can guide you on this topic based upon their experience of current HMRC acceptance criteria and other practices. It is certainly true to say however that trust deeds can (and often do) proceed successfully with HMRC tax debts included.
It’s sometimes necessary to change bank account before signing a trust deed. Certain types of bank account become at risk of closure if you enter a personal insolvency process.
It isn’t especially difficult to switch your personal bank account. There are lots of fully-functional personal bank accounts that will remain available if you do enter a debt solution. Switching your business bank account may not be quite as straightforward, but there are still options that should fully serve your needs during your trust deed (provided that you do not need access to credit).
If you’re a company director or self-employed, the process of entering a trust deed in Scotland can be a little more complex than it is for others. This makes it especially important for you to select a provider that can provide any enhanced support and advice that you might need.
Some high-volume call centre firms may be unable to assist you because they simply don’t deal with complex cases at all. A more appropriate source of support may be a specialist smaller firm, or a firm that delivers both insolvency and accounting services.
Both of our website’s recommended trust deed providers offer specialist support to self-employed and company director clients. You can learn more about them by visiting our experts page.
