What are the tax implications of restructuring your business debt?
By Mr Bankruptcy
21st February 2023
Tax may not always be the first thing on your mind when you’re trying to manage a business debt. But restructuring business debts does have tax implications that you need to be aware of, in order to ensure that you are making the right choices. Unexpected tax liabilities can add substantial costs, so it is important to get it right.
How does tax apply to debts?
If a business realises a profit as a result of repaying a debt at less than its full value, then this can be taxed at 20%.
HMRC can, however, offer tax relief for businesses in financial difficulty in order to help them pay down their debt without being hit by an unhelpful tax liability. This means that businesses now have more options open to them when cancelling debt during restructuring.
What should I be aware of?
Different ways or dealing with a debt or restructuring debt can lead to different tax implications and liabilities, so managing debt and associated taxes is a complex operation. This means that tax risks must be considered early on in the restructuring or insolvency processes so that they can be mitigated as much as possible.
Without proper planning and awareness you may incur significant yet unexpected tax liabilities and you may also run into the conflicting interests of stakeholders that need to be managed correctly if you are to move forward with your debt management plan.
When considering your debts, any tax owed is usually considered a priority debt so this is another reason why tax liabilities need to be identified early so you know what tax will have to be paid and how this impacts on your ability to repay other creditors.
Take time to seek professional debt advice
After the impact of Covid-19, many businesses are having to look at their debts and consider ways to manage them effectively and efficiently. To do this, it’s important to know all your options and the implications of each one before you can choose the right path for your circumstances.
Understanding the tax implications of all of this ensures you won’t be caught out by a tax bill that could stall your recovery.
Ensure that you seek specialist advice to find practical solutions that can be delivered in a timely way, so that you can be confident that any debt restructuring you do will take you and your business to the desired destination.
James Rosa Associates
James Rosa Associates is a firm of professional debt advisors and debt adjustors with a track record in helping businesses and individuals deal with debt.
With a supportive and friendly approach, we offer a full range of advice and professional services to individuals and business owners/directors who face unmanageable debt or who are involved in civil or commercial disputes.
Our services include:
We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke solutions to fit their specific circumstances.
Find out if you qualify for a free consultation
If you want to deal with an unmanageable debt or bring a dispute to a swift and cost-effective resolution, contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out whether you qualify for a free consultation.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.