Is an IVA suitable if Self Employed

22/08/2018
Is an IVA suitable if Self Employed

An IVA is available for self employed people. Tax and business debt can be included. However you need to be mindful of some implications.

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Can you start an IVA if you are Self Employed?

If you are self employed there is nothing to stop you considering an IVA to resolve your debt problems. In fact the solution was introduced in 1986 specifically to help business people.

You can continue running your business while you are in the Arrangement. It is a private agreement so your customers will not find out unless you tell them.

Having said that one of the significant issues you might face is the negative affect on your credit rating. This will prevent you from using an overdraft facility or opening new credit accounts with trade suppliers.

If may be able to leave a credit card account out of your IVA if you need it for business expenses. However you will normally have to be able to pay the balance in full each month.

What happens to Tax and Business debts in an IVA?

As a self employed person HMRC could be one of your most aggressive creditors. Any debt you owe them including Tax, PAYE and VAT arrears can be included in an IVA.

The arrangement will therefore provide significant benefit because you will no longer have to constantly negotiate with them. This will free up a considerable amount time allowing you to get on with growing your business.

You can also include your other business debts. For example if you have a business loan or bank overdraft or you owe money to suppliers these can all be added to the Arrangement.

Once you start an IVA you will have to pay any new tax liabilities that you build up through your business. You will have to ensure you budget for this in your ongoing monthly accounts.

Can your business sustain the required Monthly Payments?

It is important to consider whether your business can generate sufficient income to sustain the required IVA payments. This is established by looking at your previous annual accounts and projections for the next 12 months.

If you have only just started your business will have little or no track record of the income you can generate. In these circumstances you may not be able to start an IVA immediately.

Generally you will need to delay your application for 6 months. This will give you time to prove that your business and the income you can generate from it is sustainable.

If you are unable prove your income straight away you should consider a Debt Management Plan to reduce your debt payments. Once you have some trading history you can apply for an IVA at any time.

Will you have to change your Business Bank Account?

If you owe money to the bank where you have your business account it is likely you will need to open a new account. This will be necessary whether you have personal or business debts with the bank.

The reason is to avoid the affects of the banking set off rule. This states that if get into arrears with one account the bank can use a positive balance in any other account you hold with them to pay what you owe.

The rule applies between your business and personal account if they are both with the same bank or banking group. However it does not apply between accounts held in different banking groups.

If your credit rating is already poor you may not be able to open a new business account. The way around this is to open a new personal account and and use this for your busines transactions.