Your client has gone bust. What happens to your unpaid invoice

Chasing works right up until the company you're chasing stops existing. After that the emails go nowhere and the small claims form has nobody to serve. What replaces it is a process someone else runs, with deadlines you can miss without ever being told.

Check what's happened before you chase again

"They've gone bust" covers several different situations, and you can tell them apart in about two minutes. Search the company on the Companies House register and read the status next to its name.

• Active. The company still legally exists. Your normal route still works: chase, add statutory interest, use Money Claim Online. Plenty of freelancers write off money that was perfectly collectable because a client went quiet and they assumed the worst.
• Active, proposal to strike off. The directors have applied to close the company down. You can object, and it's worth doing quickly, because your options narrow sharply once it's dissolved.
• In liquidation or administration. An insolvency practitioner is now in charge. Skip to the next section.
• Dissolved. The company no longer exists as a legal person. That's the hardest of the four, and there's a section on it below.

The filing history on the same page usually tells you when the status changed and which firm was appointed. Formal insolvency notices also appear in The Gazette, the UK's official public record.

If a practitioner is in charge, file a proof of debt

Once an insolvency practitioner is appointed, they take over the company's affairs and every claim against it runs through them. That includes yours. Emailing the director isn't a chase any more, it's just an email to someone who couldn't pay you if they wanted to.

The practitioner is supposed to write to known creditors with an initial notice, and a proof of debt form comes with that letter. If nothing has arrived, don't sit and wait. Companies House and The Gazette both name the firm handling the case, and you can contact them yourself to be registered as a creditor.

The form is short. What supports it is what you already have: the invoice, the date you issued it, the date it fell due, the signed contract or proposal, and the emails where the work was agreed. Send them together. The government's guidance for creditors sets out the process, including the part people get caught by: you normally have to submit your claim before money is distributed, or you lose your share of it.

Keep the covering note factual. The practitioner isn't there to judge whether your client treated you badly. They're establishing who is owed what, and they read a lot of these.

Where you sit in the queue

Money recovered from an insolvent company is paid out in a fixed legal order, and it isn't the order you'd hope for. The costs of the insolvency come first. Then preferential creditors, which mainly means employees' wages and pension contributions. Then any lender holding a floating charge, usually a bank. Unsecured creditors come after all of that.

A freelancer with an unpaid invoice is almost always an unsecured creditor. If anything is left when it reaches that stage, it's shared out in proportion to what each creditor is owed, so what you get is a percentage rather than the sum on your invoice. Government guidance is blunt about the likely outcome: where there are few assets, you may receive nothing.

File anyway. It's an hour of your time and it's the only route to whatever does exist. Plan your own cash flow as though the answer is nothing, though, because that's the realistic base case, and it's why the tax section below matters more than the claim usually does.

If the company has already been dissolved

A dissolved company has been removed from the register and no longer exists as a legal person. You can't sue it, and there's nobody to send a proof of debt to.

Two things are still worth checking. The first is whether anyone gave you a personal guarantee, meaning a named individual agreed to be liable if the company didn't pay. That's uncommon in freelance work, but where it exists the debt survives the company. The second is whether the company had assets when it went. If you think it did, a creditor can apply to the court to have it restored to the register so recovery can start again, and the window for that is six years from the date of dissolution. Companies House sets out both restoration routes in its guidance on restoring a dissolved company. It means a court application and legal costs, so it's a question of proportion. Worth exploring for a five-figure debt. Rarely worth it for a few hundred pounds.

What you can still claim back from HMRC

Whatever happens with the claim, there's usually something to recover on the tax side, and it's the part freelancers most often miss.

If you're VAT registered, you have very likely already paid HMRC the VAT on that invoice. You can claim it back through VAT bad debt relief once the debt is six months past the date it was due, provided you've written it off in your accounts. There's a longer backstop deadline for making the claim, and both time limits sit in HMRC's VAT Notice 700/18.

For income tax, it depends on how you keep your books. Most sole traders use the cash basis, where income counts when it lands in your account. If the money never arrived, you never recorded it as income, so there's nothing to write off and no relief to claim. You're not being taxed on it either, which is the quiet consolation. If you use traditional accruals accounting, that invoice did go into your turnover, and you can deduct it as a bad debt once you're satisfied it won't be recovered. HMRC covers the difference in its guidance on expenses if you're self-employed.

Either way, write it off properly in your records instead of leaving it open. An invoice you've mentally given up on still sits in your figures as money owed, and it will follow you into next January looking like income you're waiting on.

The bottom line

A client going under is one of the few freelance problems that says nothing about you or your chasing. The work was done, the invoice was right, and the company ran out of money. What's yours to decide is the response: check the register before you spend another fortnight chasing, get your claim in while the practitioner's deadline is open, reclaim the VAT when the six months are up, and close the invoice off in your books.

The other thing in your control is next time. Deposits and staged payments mean less of your money is sitting inside someone else's business on the day it goes, and shorter payment terms do the same job. None of that helps with the invoice you're holding now. It changes the size of the next one you lose.