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Financial Legal Requirements of a Business

Managing the finances of a business can be quite different to dealing with your personal finances.

Tax requirements for businesses

There are different taxes that your business may need to pay, such as:

  • Corporation Tax
  • Capital Gains Tax
  • Value Added Tax (VAT)
  • Income Tax

Which of these taxes you will have to pay depends on the sort of business that you are running – for example, you don’t have to pay corporation tax unless your business is set up as a limited company, and you only need to pay VAT if your business turnover exceeds £81,000 a year.

There are ways you can reduce your tax outgoings if you are running a business, such as claiming tax allowances for purchasing certain business assets, or claiming tax relief for home utilities if you work from home.


If you are unable to pay your business’ debts, you may have to apply for bankruptcy, and if you owe a substantial amount, your creditors can apply to have you declared bankrupt.

It is a common misconception that a business can go bankrupt – only an individual can be made bankrupt. Therefore, if a business is unable to pay its debts, it will instead be declared insolvent.

Being declared bankrupt will result in a number of restrictions being placed on your business activities for a period of time. You will be unable to act as director of a company or manage another company without first receiving permission from the court. If you do manage a different business, you will need to inform those you do business with that you have been declared bankrupt.

You will also have your home and other assets sold off and will have to make monthly payments from your spare income.


Insolvency differs from bankruptcy in that you do not need to make an application to a court for a business to be considered insolvent.

There are a number of different insolvency procedures which can be followed – for example, the company can go into liquidation, and all of the assets will be sold in order to pay back creditors. Alternatively, the company could go into administration, where an administrator takes control over both assets and business operations, and works to repay the creditors.

Debt Recovery

If a company or individual is in debt to you, you can instruct a debt recovery firm to chase them on your behalf and take any action necessary to settle any outstanding debts. Generally, a letter from the firm will be enough to convince a debtor that they need to pay what they owe you.

Alternatively, you can carry out debt recovery yourself by taking the debtor to court and having a county court judgment issued against them. This will save you the cost of hiring a firm to act on your behalf, however it will require more work on your part. You also run the risk of making a mistake and ending up with a county court judgment that you can’t enforce.

Depending on how overdue the payment is, you may be able to claim extra money from them in the form of late payment interest or debt recovery costs.

Get legal advice for your business

Getting legal advice for your business can be tricky, as you often need specialised advice that you can’t get from a consumer legal advice service.

However, if you do need business legal advice, our Instant Law Line service could be of great help to you. We can give you telephone legal advice on all aspects of business law in the UK, all for a low monthly or one-off fee.

Visit our Instant Law Line for Business section to learn more about how to take advantage of this.

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