Self-employed ‘more susceptible to bankruptcy’

Self-employed individuals face a greater risk of having to enter bankruptcy than those who work for an organisation.

This is according to Una Farrell of the Step Change debt charity, who told the Independent that people in this situation often have their personal finances "tied up" with their business activities and so may not necessarily recognise the gravity of the situation.

Because of this, if self-employed individuals do not stay on top of their tax matters, they could end up owing a significant amount of money to HM Revenue and Customs (HMRC).

Ms Farrell stated: "This means it can be hard for them to realise that they have a personal debt problem before it is very serious and they are facing bankruptcy. It is therefore crucial that anyone who is self-employed and struggling financially, or even just worried about their finances, seeks professional advice on how to deal with their finances."

One of the biggest issues facing self-employed individuals is that they will typically use personal loans to prop up their business, which is an unsustainable option in the long term as it will leave them facing serious personal financial difficulty if the business fails.

Instead, individuals should attempt to ring fence their personal finances in an effort to keep control of the situation.

Ms Farrell pointed to the case of actress Martine McCutcheon, who recently applied for bankruptcy after amassing debts of over £187,000 – although £149,000 of this is owed to HMRC. This demonstrates how it is vital that financial affairs are dealt with properly.

HMRC will get in touch with people to warn them of their obligation to settle any outstanding tax bills, so they need to take steps to keep their finances well ordered.

McCutcheon is not the only celebrity to file for bankruptcy recently, as singer Shane Filan and reality TV star Kerry Katona have both been forced to go down this route.

By Amy White