IVA for the Self-Employed: How It Works

Can a self-employed person get an IVA?

Yes. An IVA is available to individuals, and a sole trader is legally the same person as their business, so business debts in your own name can usually be included. The proposal has to show your business income, costs and profit honestly, and your creditorsHow to Deal with Creditors: Communication and NegotiationPractical advice on communicating with creditors, negotiating affordable repayments, and understanding your rights when dealing with the companies you owe.Read more → must agree to it. As with anyone, the proposal is approved if creditors holding 75% of the debts agree, and it then binds all of them. Limited company debts are different: the company is a separate legal person, and its debts are not covered by your personal IVA unless you gave personal guarantees.

How payments are worked out

For an employee, income is easy to see on a payslip. For a self-employed person, the practitioner looks at the profit your business makes after allowable costs and tax. They then deduct a reasonable amount for your personal living costs and for the tax you owe. What is left is the amount you can offer creditors. Because profit is rarely identical month to month, the arrangement may use an average, and payments are reviewed regularly, usually every year.

You will normally need to provide:

• Business accounts or a set of recent figures
• Tax returns, and evidence that your tax is up to date
• Bank statements for personal and business accounts
• A list of all debts, including any business-related loans and credit cards
• A forecast of income and expenses

Business and tax debts

Personal debts and business debts in your name can be included in the IVA. Tax is more complicated. HMRC is a creditor and has a vote, but your ongoing tax bill, such as the next Self Assessment payment, must still be paid as it falls due. Failing to keep current tax up to date can lead to the IVA being cancelled. If you owe tax now, see our guide to HMRC tax arrears and Time to Pay before you choose a route.

Keeping the business going

A major advantage of an IVA over bankruptcyBankruptcyBankruptcy is a legal process that writes off most debts when you cannot repay them. Understand how bankruptcy works in the UK, the consequences and alternatives.Read more → is that it can allow you to continue trading. You can keep your business tools and, in many cases, your trading name. However, you may not be able to take on significant new credit without your practitioner's permission, and your supplier terms may be affected if they see the IVA marker. Speak to the practitioner about how the arrangement affects your day-to-day dealings, such as business bank accounts and card payments.

Risks specific to self-employed people

• Irregular income: A bad month can make payments difficult. Ask whether the arrangement allows a payment break, and what happens if profit drops permanently.
• Contributions rising: If your profit improves, your practitioner may ask for more at the annual review.
• Tax and VAT: Missing these can trigger penalties and put the IVA at risk.
• Personal guarantees: If you guaranteed a company debt, it may be included as your personal debt.
• Fees: The costs are taken from your payments. See our guide to IVA costs and fees.

Free advice for the self-employed

Free help is available from Business DebtlineBusiness Debt Help for Sole Traders and Small FirmsWhere small businesses and the self-employed can get free debt advice in the UK, and the main options, from payment plans to a company voluntary arrangement.Read more →, a service run by the Money Advice Trust for the self-employed and small businesses, as well as from StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, National DebtlineNational Debtline: How It Works, When to CallWhat National Debtline is, who runs it, what it can help with, how to get free advice by phone, webchat or online tools, and what to expect.Read more → and Citizens Advice. They can explain whether an IVA is the best option, or whether something cheaper, such as a payment plan with creditors or HMRC, would work. Our guide to business debt help explains these services.

Alternatives to consider

1. Negotiate directly with creditors and HMRC for time to pay.
2. A debt management plan, which is informal and flexible. See debt management plans.
3. A Debt Relief Order, if your debts and income are low enough.
4. Bankruptcy, if the debts are unmanageable.

A worked example

A self-employed electrician makes £30,000 profit after costs and has £25,000 of personal and business credit debt. After tax and a reasonable personal allowance for living costs, the practitioner finds £250 a month spare. They propose £250 a month for five years, reviewed annually. Their income dips one winter, so they tell the practitioner and agree a short adjustment. They keep paying their Self Assessment bill on time. After the term, the remaining included debt is written off. In a different case, if profits fall permanently, the same electrician might be better served by another route, so honest forecasting matters.

Questions to ask a practitioner

Ask how they will treat variable income, whether there is a payment break option, how tax and VAT are handled, and what would happen if the business closed. Ask how your accounts will be assessed and who will review them. A practitioner who has worked with sole traders will answer straight away. If they only talk about employed clients, you may want another opinion.