Self employed IVA – The Ultimate Guide

Self employed IVA – The Ultimate Guide

If you run your own business, you can do a self employed IVA.  You can include the majority of your business and personal debts. This guide explains how you can start an IVA and what to expect.

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How do you calculate your self employed IVA payments?

Your self employed IVA will usually be based on monthly payments lasting 5-6 years. The payments are based on your surplus income.

Your surplus income is the amount you have left after your month living expenses are deducted from your monthly income. You have to pay all of this this into the agreement.

But a self employed person, the main issue is that your income will usually change from month to month. So what income figure do you use to work out your surplus?

The answer, is you use an average of your income over time. Generally speaking, this is based on your past 6-12 months earnings.

You will also need to remember to separate your business income and expenses from your personal figures. Your take home pay so to speak, is the average amount you draw from your business after deducting all of your business expenses and any provision for any tax.

Struggling to get your head round all of this? We can help you implement an IVA. Call us (0800 011 4712) or complete the form at the bottom of this page. The advice is free and confidential.

Can your self employed IVA payments go up?

The payments you make into your self employed IVA are not fixed. As with any standard Arrangement, they can go up.

Normally, IVA payments go up as a result of you getting a pay rise. But when you work for yourself, you don’t get pay rises. So how does your IVA company decide whether you can afford to pay more?

They way they do this by looking to see whether your average income has increased. Each year, they will ask you to provide information about your last 12 months business income and expenses. They are also likely to ask you for a copy of your most recent tax return.

They will then be able to work out your average drawings after provision for tax for the year.

If your average drawings are greater than the year before, it has the same affect as if you were employed and got pay rise. 50% of any resulting increase in your surplus income will be added to your monthly payment.

Remember, if your monthly payment goes up, your IVA will not finish any sooner. You still have to pay for the same length of time. It simply means you will pay back more of the original debt you owed.

Can you include a bounce back loan in a self employed IVA?

When you start a self employed IVA, you include your business as well as your personal debts. This is because you are personally liable to repay these even though you borrowed them for your business.

Given this, you are allowed to include any bounce back loan you borrowed. It is treated in the same way as any other unsecured debt you owe.

You may be concerned that if you include this debt, the bank might accuse you of fraud. This is extremely unlikely to be the case.

The reason you are using an IVA is that your business has not recovered as well as you hoped it would after the Covid pandemic. The fact that you can’t repay your loan now is not fraud. It is just unfortunate.

You may have to give information about how you spent your bounce back loan. The only time there could be an issue is if you used the money to buy a personal asset such as an expensive car. In these circumstances you might have to sell your vehicle. You can then buy a cheaper, but you will have to pay the difference into your Arrangement.

Need more advice about starting a self employed IVA? Call us (0800 011 4712) or complete the form at the bottom of this page. It’s free and confidential.

Will you be able to use your business bank account?

If you include debt in your self employed IVA that you owe to your bank, you will no longer be able to use your business account with them. The reason for this is the banking set off rule.

Set off means that after your IVA starts, the bank could help themselves to any cash paid into your account with them. You therefore need to protect yourself by opening a new business account with a bank you don’t owe money to.

Your options for opening a new business account depend on your credit rating. If it is good, you can approach pretty much any bank you don’t owe money to. If your credit rating is poor, you will likely be restricted to a basic account.

In these circumstances, there are a number of options you can consider:

– Monzo bank – Internet based bank offering both person and business accounts
– Starling bank – Internet based bank offering both person and business accounts
– Tide – Internet bank offering business accounts

Even if your credit rating is good, it is certainly worth considering the above banks. The application process is on line and your new account almost immediately with a debit card following within a couple of days.

Is HMRC debt included in a self employed IVA?

Any personal tax arrears you owe can be included in your self employed IVA. This is regardless of whether or not the debt is old or from last year.

However, there are various implications.

First, before you can start the application process, you will have to complete and submit all your personal tax returns. This includes any historic returns and the return for the end of the latest tax year.

You must also submit your latest tax return (even if it is not official due until January next year). This is because it then provides proof of what (if any) personal tax arrears you owe to date.

Second, after your IVA has started, you will still have to pay any tax on your earnings for subsequent years. For this reason, it is critical that you put sufficient money aside each month or quarter to allow you to pay these bills when they become due.

Third, if you are a home owner with equity, HMRC may reject your proposal. This could stop you from using a self employed IVA depending on the size of the HMRC debt.

VAT and PAYE arrears

VAT arrears or money you owe to HMRC in the form of PAYE is preferential. This means you will have to pay these debts in full.

In theory, you can still include this debt in your IVA. However, to achieve this, you will have to pay in a sufficient amount over the course of the agreement to cover 100% of this debt, plus the IVA company fees and an additional amount to your other creditors.

Tax rebates in a self employed IVA

If you pay tax in advance or are taxed on the CIS scheme, you may used to receiving a rebate at the end of the year.

In theory, any tax rebate payment you get can be treated as a windfall. This means you would have to pay it into your IVA over and above your standard monthly payments.

However, this will very much depend on the attitude of your IVA company. You should make sure you discuss this with them before signing up the agreement so you know exactly where you stand.

Can you use credit facilities in a self employed IVA?

As general rule, you should not use credit during your self employed IVA. If you borrow money, you may then struggle to maintain the repay this on top of what you already have to pay into your IVA.

That said, there are some forms of credit you may still be able to take advantage of.

One of these is a trade account with a supplier. If you already have the account up and running, there is no reason you should not continue to use it. However you must pay the full balance at the end of each month so you don’t run the risk of getting into arrears.

You can also continue to use a business credit card. However, the balance must be zero when you start your IVA. In addition, it must be with a bank that you are not planning to include in the Arrangement. As with a trade account, you must pay the balance in full each month.

You will be able to continue using your mobile phone contract and other telecoms agreements you have in place for your business.

What happens if your vehicle is on finance?

Your self employed IVA should not affect your car or van finance agreement.

Given you want to keep the vehicle, your outstanding finance is excluded from the Arrangement. You must continue to maintain the agreed monthly payments. But as long as you do this, the finance company should not have any problem.

You must include the payments in your business income and expenses. This is because you use the vehicle in your business, Don’t put the expenses associated with the vehicle in your personal living expenses budget.

You may have a vehicle on finance that you no longer need, or you don’t have sufficient income to maintain. In this situation, you have the option of handing it back to the finance company.

It is possible for you to include any shortfall on the finance after the vehicle has gone back to the finance company in your IVA.

Start a new vehicle finance agreement during a self employed IVA

You may want to take out a new vehicle finance agreement during your IVA.

Generally speaking, this is possible, particularly if your business has sufficient income to maintain the new payments.

However, because your credit rating is poor, you are unlikely to be able to apply for finance from a main stream dealer. You will have to use a so called sub-prime lender. They will charge you a higher rate of interest.

The finance company will usually need written confirmation from your IVA company that they are happy for you to take on the new agreement. This should not be an issue as long as your IVA payment is not be affected.

Do you have to tell your customers about your IVA?

Your IVA is a private agreement between you and your creditors.

There is no reason your customers need to know about the Arrangement. You do not have to tell them.

Your details are recorded in the Individual Insolvency Register (IIR). This is a government maintained public register of everyone who is official insolvent.

The IIR is accessible on the internet which means if someone wanted to find out if you are in an IVA, they can do so.

However, it is extremely unlikely that any of your customers or other people who know you, are even aware of this register. Given this if is very unlikely that anyone will find out unless you let them know yourself.

Want to start 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.

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