If you are self employed, you can use an IVA to manage your debts. This is regardless of whether you run your business as a sole trader or limited company.
Included in this article:
- Is an IVA possible if you are self employed?
- Do you include your business debt?
- Can you keep using credit to run your business?
- Will your customers find out?
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Is an IVA possible if you are self employed?
You may have been told that you can’t start an IVA if you run your own business. This is not true. Self employed people can use an IVA to manage unaffordable debt.
However, if you work for yourself, particularly as a sole trader, setting up the Arrangement is more complicated than if you were an employee. As such, you will require specialist assistance.
The main challenge is to accurately calculate your monthly income. This normally has to be based on your average monthly drawings from your business after tax over the past 6-12 months.
The way we work this out is to first review your total business income and costs. Your total drawings before tax is then calculated by deducting one from the other. Second, a provision is made for tax and national insurance deductions. The remaining figure can then be divided by the number of months reviewed to give an average.
We provide specialist assistance to help you get a self employed IVA. Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential
Do you include your business debt in your IVA?
As long as you run your business as a sole trader, any business debt you have can be included in your IVA. This is because you are personally liable for paying it. You can even add debt owed to HMRC and any Covid 19 bounce back loan you have taken.
Generally speaking, you should include all of these as well as your personal debts. An IVA works best if all the money you owe (whether business or personal) is consolidated together leaving just one monthly affordable payment.
Leaving one or more business debts out causes two problems. First, you still have to keep up the monthly repayments. Finding the money to do this on top of paying your IVA will be very difficult. Second, the creditors you include are less likely to accept the agreement if they know you are still paying others that remain outside of the Plan in full.
If you run a limited company, you are not personally liable for any business debts. As such, these can’t be included. However, it is very important to let your IVA company know about any personal guarantees (PGs) you have given. They must be acknowledged in the Arrangement in case you become liable for them while it is running.
Can you keep using credit to run your self employed business
Ideally, you should not use credit facilities of any kind while you are in an IVA. However, running your business in this way can be difficult. You may need a trade account with a supplier for materials. Working without a credit card for business expenses can cash cash flow issues.
But what if you are already in arrears with these types of accounts, or have balances which are too large to pay off?
The solution is to include these debts in the Arrangement. But before you start, set up a new trade account with a different supplier or apply for a new credit card. These facilities will remain open when your IVA is running as they will not be involved.
You have to apply for new credit facilities before starting the Arrangement because afterwards, your credit rating will be poor and you are likely to be rejected.
If you use credit for your business during your IVA, make sure you only borrow what you can repay in full each month. Getting into arrears with new debts during the Arrangement could cause it to fail.
Will your customers find out about your IVA?
An IVA is a private debt solution. The only people who are told about it are the creditors who are involved.
This means that your customers are very unlikely to find out unless you tell them. You are not required to inform them.
Once the agreement is in place, your name and address are included in a list called the Individual Insolvency Register (IIR). This can be viewed publicly via the internet. As such, it would be possible for a customer to find out you are in an IVA by searching the register for your name.
That said, it is extremely unlikely they would do this. Most people are not even aware that the IIR exists. The chance that they would ever think to look at it is very low, unless they already knew you were in an IVA and wanted to check the details.
Self employed and want to start an IVA? Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential