The Breathing Space scheme gives someone in problem debt in England and Wales legal protection from their creditors. A standard breathing space lasts 60 days. During that time, interest, fees and charges on the included debts are frozen, and creditors must pause enforcement and stop contacting the debtor for payment. A mental health crisis breathing space lasts for as long as the person is receiving crisis treatment, plus 30 days. You cannot apply yourself. You apply through an FCA-authorised debt adviser or a local authority debt advice service.
Where the scheme comes from
The legal name is the Debt Respite Scheme. Its rules are in the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020, SI 2020/1311, and it came into force on 4 May 2021. The Insolvency Service runs the electronic register that notifies creditors. A breathing space starts the day after the debtor's details are entered on that register.
A breathing space is not a debt solution. It is a pause in which a debt adviser works out what the solution should be. That might be a repayment plan, a debt relief order, an IVA or bankruptcy, or simply a negotiated arrangement.
Who qualifies for a standard breathing space
Regulation 24 sets the conditions. The debtor must:
- Be an individual with at least one qualifying debt;
- Be domiciled or ordinarily resident in England or Wales. The scheme does not extend to Scotland or Northern Ireland;
- Not already be in a formal process. That rules out anyone subject to a debt relief order, an IVA or interim order, or who is an undischarged bankrupt;
- Not have had a recent breathing space. Any previous standard breathing space must have ended more than 12 months before the application.
The debt adviser must also decide that the person is unable, or is unlikely to be able, to repay some or all of their debt as it falls due, and that a breathing space is appropriate. The mental health crisis version has no 12-month limit. It needs an Approved Mental Health Professional to certify that the person is receiving mental health crisis treatment.
What the protections do
Regulation 7 sets out what creditors cannot do during the moratorium for any debt included in it:
- Charge interest, fees, penalties or charges that accrue during the moratorium. Creditors cannot reclaim them after it ends either;
- Take enforcement action. No collection, enforcing judgments or security, starting court proceedings, or using enforcement agents;
- Contact the debtor to ask for payment, or instruct an agent to do so;
- Present a bankruptcy petition against the debtor;
- Treat non-payment of interest or charges from the moratorium period as a breach of the credit agreement once it ends.
Joint debts can be included even if only one person applies. Creditors must then apply the enforcement protections to the other joint debtors too. They can still charge those other people interest and fees, though, and the other people's own debts are unaffected.
Debts that cannot be included
The Insolvency Service's guidance for creditors lists the main exclusions:
- Secured debts such as mortgages and hire purchase. Only arrears that exist at the date of application can be included;
- Debts arising from fraud;
- Court fines and similar penalties;
- Child maintenance;
- Student loans;
- Personal injury damages;
- Council tax not yet due. Arrears can be included, but future instalments cannot.
The person must also keep paying ongoing liabilities that fall due during the breathing space, such as mortgage, rent, utilities, council tax and insurance. If they do not, the debt adviser can cancel the breathing space, unless the person did not have the means to pay or cancelling would be unfair or unreasonable.
Sole traders, business debts and HMRC
This is where accountants get involved. Business debts of a sole trader can come within a breathing space, with two important exceptions. A debt that relates only to the business does not qualify if:
- The debtor is VAT registered; or
- The debtor is a partner in a business with someone else.
Limited companies cannot use the scheme at all, because it is for individuals. A company in difficulty has different tools, including the corporate moratorium and restructuring options.
HMRC is treated as an ordinary creditor for qualifying tax debts. Its Compliance Handbook at CH192430 says breathing space covers eligible business debts of small traders who are not VAT registered, including interest and late payment penalties. It also makes a distinction that catches people out. Late submission penalties and penalty points can still be charged during a breathing space, because they are not penalties relating to a debt. A sole trader in breathing space should still file every return on time, even if they cannot pay.
How the 60 days play out
- Advice and application. The debt adviser assesses the person's position and, if they are eligible, enters them on the register. Creditors are notified electronically;
- Days 1 to 25. Protections apply. The adviser gathers information and starts to work out a solution;
- Midway review. Regulation 27 requires a review after the first 25 days and by the end of day 35. The adviser checks that the person is meeting their obligations and still needs the breathing space. It is cancelled if they are not, if a debt solution is already in place, or if the adviser cannot reach them;
- End. The standard breathing space ends after 60 days. The debts are still owed and creditors can resume normal contact. The point is that by then a plan should exist.
The Insolvency Service guidance for creditors and the 2020 Regulations are the primary references. Businesses that are owed money should note that a breathing space notice is a legal stop. Sending a reminder or passing the account to a collector after notification breaches the rules.
A breathing space buys time, but it does not fix the accounts or the tax position. Sole traders who come out of one with a plan usually need their records and returns brought up to date quickly. Our accountants for sole traders handle overdue returns and HMRC correspondence. Businesses facing broader financial pressure can speak to our advisory team.