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Self-Employed IVAs: What Do You Need to Know?

If you’re a self-employed individual operating as a sole trader or as part of a partnership, you might worry about how problem unsecured debt can affect you. Also, you may wonder if you’re eligible for different debt solutions, like an Individual Voluntary Arrangement (IVA).

If you’re wondering if an Individual Voluntary Arrangement is right for your unique situation, the answer is yes. You’ll be able to rollover your personal unsecured debts as well as business debts (if you operate as a sole trader) into the agreement. By doing this, not only will your creditors receive more money than they would if you declare bankruptcy– but any leftover debt will be written-off during the off upon successful completion of the terms of your IVA plan.

IVAs were first established with self-employed individuals in mind as a way to regain control of business finances and deal with personal debts and business debt without declaring bankruptcy. This provides struggling sole traders an opportunity to recover and be successful again. The IVA will also allow you to continue operating a business bank account.

Enquiring about Self-Employed IVAs

The most crucial thing to consider when deciding whether or not to use an IVA as opposed to other debt solutions is to ensure that you fully understand the procedure and any potential impacts on your day to day business operation. Each individual situation is unique and depends on your financial circumstances, therefore the Become Debt Free team can assist you in comprehending the process and determining whether it would be beneficial for both you and your business.

If you are self-employed and struggling with your unsecured debts or if you are already in an IVA and contemplating becoming self-employed, this article covers all the information you need to know. We will go over a range of needs that self-employed IVAs can address, as well as what steps to take if you’re already in an IVA but considering making the switch. If at any point you have questions that haven’t been answered here, contact Become Debt Free and a member of our team will be more than happy to help out.

Once you begin your IVA process, a licensed Insolvency Practitioner (IP) will review the various payment options for self-employed IVAs based on your situation, such as contribution-based options or lump sum settlement-based arrangements. Later on, we’ll delve further into these concepts.

What Makes Self-Employed IVAs Different to a Regular IVA?

For those who are self-employed as a sole trader or in a partnership, knowing how much you’ll earn each month is difficult as your work could be seasonal or just naturally fluctuate up and down each month, so it can be hard to set up regular monthly IVA payments.

As a result, it’s critical to fully comprehend your business and ensure that any payments you propose are affordable all year, so your Insolvency Practitioner will require a cash-flow forecast from you to evaluate how much your revenue changes throughout the year and predict whether you can afford the proposed payments into your IVA.

The major disadvantage of IVAs is the fact that any future borrowing or credit applications are restricted. However, a self-employed arrangement is somewhat more flexible. You’ll still need to discuss borrowing anything above £500 with your IP, but you might be able to keep certain business-related lines of credit open in order to continue operating as usual.

I am Already in an IVA, Can I Start My Own Business?

There are no restrictions on starting a business during an IVA, but you should only do so if it is the right decision financially. However, keep in mind that if your new business requires any financial outlay, you must discuss this with your Insolvency Practitioner first.

Before committing to such a decision, you should consider whether you will be able to maintain your ongoing IVA commitments during the initial months of self-employed trade. This is particularly important the further into your IVA that you are as if you were no longer able to maintain your IVA, it could lead to the IVA being terminated. It’s also worth noting that your credit score and ability to borrow money will be severely hampered as a result of the IVA, so it may be best to put new business ideas on hold until you’ve finished your IVA and rebuilt your credit score.

How Are Business and Personal Assets Handled in Your IVA

One of the primary reasons why many sole traders prefer an IVA to bankruptcy is that with an IVA, you can keep your assets. This is particularly important if you have expensive tools or machinery that are essential to your ability to continue trading and generating a monthly income. The majority of your property, including your house, will be secure. However, there are certain exceptions – for example, if you have a car that is very valuable but not essential to keep your business operational, you may be forced to sell it in order to pay some money into your IVA.

The most important thing to remember is that for your IVA to work, your business needs to work so any essential assets that you need to keep your business functioning are likely to be excluded from your IVA Like with any IVA, If you own a property, you will be required to attempt to re-mortgage your property during the final year of the arrangement if you have an equitable interest worth over £5,000 based on the current valuation and mortgage redemption balance.

If you are unable to re-mortgage and have over £5,000 equity in the property, you will continue to make up to 12 further payments into your IVA meaning that your IVA would last for 6 years as opposed to 5. Unlike bankruptcy, if you have equity in your property you will not be expected to sell your home to repay creditors which is one of the main benefits of an IVA. Once the arrangement has completed, any restriction placed on your property by the insolvency firm will be removed.

I Owe Money to HM Revenue & Customs, Will They Accept My IVA?

Being self-employed almost certainly means that HM Revenue & Customs will be a creditor in your IVA and may choose to vote on whether to accept or reject your offer.

This could be due to outstanding income tax and national insurance arrears from previous tax years and may also include penalties for missed payments or late filing of accounts. It could also include VAT if your business turnover is high enough that you are eligible to pay this. HM Revenue & Customs will give careful consideration to all proposed IVAs and as long as they offer is perceived by them as being the best offer that can be made based on your circumstances. In such instances, they are likely to accept the arrangement.

However, it is very important to note that HM Revenue & Customs will reject any proposed IVA in which there are outstanding late tax returns due from previous years. Therefore, before you consider proposing an IVA to your creditors, please make sure all your tax returns are up to date and submitted.

During the term of your IVA, HM Revenue & Customs will require that tax returns are submitted on time and failure to do so can lead to your IVA being terminated.

HM Revenue & Customs will usually claim for all outstanding arrears in the IVA plus any income tax and national insurance due for the full tax year that your IVA was approved in. For example, if your IVA was approved in June 2022, HM Revenue & Customs claim will include any tax and national insurance due for the April 2022 – April 2023 tax year as well as any previous arrears.

This means that your IVA payments for the tax year that it was approved in may be higher as a result before reducing the following April.

Self-Employed Arrangement repayments – What Options are Available?

Contribution-based repayments 

This is the option that is suited to most arrangements and involves an arrangement to make affordable monthly payments over 5 or 6 years. The level of monthly payment will be based on the cashflow forecast prepared prior to your IVA being approved. Depending on the nature of your business, payments will either remain static at the same amount or can vary if your work is seasonal. All of this should be discussed and agreed with you prior to the IVA proposal being sent to your creditors.

Full and final settlements 

Creditors may accept an offer to pay off a portion of your debt and write the remainder off. If you have an asset or assets that can be sold to raise a lump sum, this might be a good option for you. Their decision on whether to accept your offer depends on how reasonable it is.

Providing the offer is reasonable and is likely to offer creditors a better return than they would receive in bankruptcy, creditors often see a lump sum payment arrangement as simpler due to the speed of settlement and corresponding reduced risk of termination as a result.

What Impact Will a Self-Employed Individual Voluntary Arrangement Have on Your Credit Score?

A self-employed arrangement will impact your credit score as it will remain on your credit record for six years – but once that time is up, you can rebuild your credit rating and you can obtain credit again. If you are self-employed and are considering an IVA to resolve problem debt, contact Become Debt Free today to speak with our team about debt solutions and how we can help you with your debts and your business stay on track.

We employ our own licensed insolvency practitioner who has many years of experience and is licensed by the Insolvency Practitioners Association.

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Customers can get free debt advice from the Money Advice Service – an organisation set up by the Government to offer free and impartial advice to those in debt. For more information from the Money Advice Service visit MAS is part of the Money & Pensions Service. We are not affiliated with MAS in any way.

Become Debt Free is a trading style of Re10 (Finance) Limited Registered Number 04651137.  Data Protection Act Registration Number – Z8613095

Become Debt Free specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland.  We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment.

* To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors.  The amount of debt write off is based on your own personal circumstances – typically this could be up to 85% of what you owe; and this has been achieved by over 10% of our customers who have successfully completed their IVA’s in the last 12 months.  The amount of debt write off differs for each customer and is dependent upon their individual financial circumstances and subject to the approval of their creditors.

Andrew Bowers is authorised in the UK to act as Insolvency Practitioner by the Insolvency Practitioners Association.


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