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Self-Employed IVA FAQs

FAQs about self-employed IVAs

Do I qualify for a self-employed IVA?

If you’re self-employed, live in England, Wales or Northern Ireland, owe £7,000 or more in unsecured debt, and can afford to make a minimum repayment of £50 each month, you can apply for a self-employed IVA.

If you live in Scotland, you may qualify for a Trust Deed which is a similar solution – you can check the differences here.

What debts can be included in a self-employed IVA?

A self-employed IVA can include most unsecured debts, for example:

  • Overdrafts/bank loans and credit cards
  • Store cards and catalogue debts
  • Council tax arrears
  • Payday loans
  • County Court Judgments (CCJs)
  • Utility bill arrears, including gas, electricity, water
  • Loans from family or friends
  • HMRC debts (including benefit overpayments)

Debts that cannot usually be included in an IVA include:

  • Mortgages
  • Secured loans
  • Hire purchase agreements
  • Court fines such as speeding tickets
  • Student loans
  • Child support arrears, like CSA
  • Any debts that are incurred after the approval of your self-employed IVA

What’s the difference between a self-employed IVA and a regular IVA?

  • Flexibility – a self-employed IVA takes into account your individual circumstances. For example, if your business income is seasonal, then your monthly IVA payments can be more flexible, allowing you to vary your payment amount each month as long as you contribute the agreed total amount over the course of each 12-month period.
  • Treating creditors differently – with a standard IVA, all your creditors are included and treated in the same way. That means they receive a dividend from the arrangement in a full and final settlement and write off the remainder of your debt when you complete your IVA. However, with a self-employed IVA, you can prioritise certain creditors if you need to keep paying them in full in order to continue trading.
  • Cash-flows – in a self-employed IVA, projecting your cash-flow for the next 12 months is important so your creditors can see that the arrangement is sustainable. There is no such requirement in a standard IVA.
  • No further credit – In a regular IVA, you can’t usually obtain further credit of more than £500 without the permission of your Supervisor. In a self-employed IVA, it is more likely that you will be allowed to take out further credit, as long as you can afford the repayments and you need the credit to run a viable business.

Can I keep trading with a self-employed IVA?

Yes. One of the biggest advantages of a self-employed IVA is that you can continue trading. A self-employed IVA is designed to allow you to carry on running your business while making affordable monthly repayments to your creditors. You will still have full control of your business and make all the decisions relating to it.

Will I lose my home or car?

A self-employed IVA protects not only your personal assets, but also your business assets.

You will know how your home and car are going to be treated before you agree to your arrangement. Selling your home is rare.

Occasionally, you may be asked to downsize your car and pay some of the proceeds into your IVA, but you can always reject this and not enter the arrangement.

If you do agree to this, you will still be allowed to keep enough funds to get yourself a cheaper replacement vehicle, especially if you need it for work or getting about in your daily life. As a rule, if the vehicle you need is worth less than £5,000, your creditors will not ask you to sell it.

How long will my self-employed IVA last?

Self-employed IVAs normally last for 5 years. However, if you own your home (or any other property) and you can’t release any available equity to pay into your arrangement, your self-employed IVA may be extended to 6 years.

In addition, the duration of your IVA relies on your ability to keep up with the monthly payments agreed by your creditors at the start of your arrangement.

For example, if there’s a downturn in your business and you need to make reduced payments, your creditors may ask for your IVA to be extended to 6 years in order to compensate them for the reduction in payments.

What if I owe money to my suppliers?

A self-employed IVA has a degree of flexibility so you can prioritise payments to suppliers who you need to keep trading with.

How will my payments into my self-employed IVA be calculated?

First, you will need to create a business budget for the next 12 months – we can help you with this.

List your projected monthly takings from your business, and then deduct all your planned business expenditure. Then, take away the monthly tax and National Insurance provision you need to make, and the figure you are left with will be your monthly net income from the business.

Next, create a personal budget. Write down your monthly net business income (which is the final figure on your business budget) and any other regular income you receive, such as benefits.

Finally, make a note of all your personal household expenditure. This should include things like mortgage or rent, council tax, utility bills, phone, travel costs, housekeeping, clothes, and toiletries.

Once you have done this, deduct your total expenditure from your total net income. This will give the amount you have left over which you can afford to pay into your self-employed IVA.

It is very important to make sure all your regular expenditure is included so you can live within your budget, and keep your self-employed IVA sustainable.

What fees are involved with a self-employed IVA?

When you choose PayPlan to provide your self-employed IVA, the agreed monthly payments you make into it will cover both your fees for the administration of your self-employed IVA as well as your creditor repayments.

So, instead of charging you any additional money, the fee is taken from your agreed monthly payment, and the rest is distributed to your creditors.

What’s more, fees are only deducted after your self-employed IVA has been approved by your creditors, so if anything changes during the set-up process – and your creditors don’t agree to your proposal – you won’t be charged for the work and preparation already done for you.

Can I keep my business bank account?

Yes, it is possible to keep your business bank account in a self-employed IVA. However, please bear in mind a few points:

  • If your business bank account is overdrawn by a significant amount, then it may be best to include the overdraft as a debt in your self-employed IVA – and open a new bank account to use for your business.
  • If your business bank account is only overdrawn by a small amount (and you need this credit facility to help with cash-flow such as paying your suppliers before you get paid by your clients), you can continue using this existing business bank account throughout your IVA.
  • Do you have any other debts with the bank where your business bank account is held? For example, you may also have a credit card or loan with the same bank – or another bank in the same group. If so, the lender could decide to use their ‘right to offset’.

    This means that they could take money out of one of your accounts that’s in credit to repay another of your accounts that’s in debt. This could happen even if one of the accounts is included in your self-employed IVA proposal. So, if you do owe other money to the same bank, it is probably best to open a new business bank account elsewhere to prevent your money being taken out.

Do I have to continue paying tax, National Insurance and VAT in a self-employed IVA?

You will need to continue to pay tax as normal while you’re in an IVA. However, any arrears or any tax owed up to the end of the tax year when your IVA was agreed can be included in your arrangement.

How will being in a self-employed IVA affect my personal credit rating?

A self-employed IVA will be noted on your credit file for 6 years from the date it was accepted by your creditors.

Your credit file is the first thing lenders usually look at when you apply for credit, so you might struggle to borrow money for the duration of the IVA. After your self-employed IVA has ended, a note will be added to your credit file to say this has been completed, which will be removed after the 6 year period.

You are not usually allowed to take out any further credit above £500 without your supervisor’s permission while in a normal IVA. However, in a self-employed IVA, it is more likely that you will be allowed to take out further credit, as long as you can afford the repayments and you need the credit to help you run a viable business.

What is the Insolvency Register?

The Insolvency Register lists all people who are in an IVA, bankruptcy or Debt Relief Order (DRO). It is mainly used by creditors searching for credit applicants or credit reference agencies to update their records, and it’s unlikely that your friends or family will know about you being on there unless you tell them.

Will I be able to trade from leased premises if I enter a self-employed IVA?

You may still be able to trade from leased premises if you enter a self-employed IVA.

However, there are a couple of things you will need to do:

  • Read the lease agreement carefully. In some cases, the lease may state that it will be terminated if you enter an IVA or bankruptcy. If your lease does state this, discuss your financial situation with the landlord of the property – and ask whether they will actually use their right to terminate the lease if you enter a self-employed IVA. If they agree not to terminate the lease, it’s important to get confirmation of this in writing
  • Check that you aren’t in arrears with payments under the lease agreement, as this could result in the landlord not allowing you to keep the property.

There will be an allowance in your cash-flow to make your lease payments when they fall due – plus repayment of any arrears – so the landlord can see that you intend to keep up with your payments.

Even if the above termination clause is in your lease agreement, the fact that you’re taking action to deal with your debts may convince the landlord to ignore this and allow you continue trading from the premises.

How would a tax rebate be treated in a self-employed IVA?

If you are due a tax rebate for either a tax year prior to the approval of your self-employed IVA, or for the tax year in which your self-employed IVA was approved, HMRC will – in many cases – either send the rebate directly to your supervisor, or offset it against the outstanding balance on your HMRC account.

What happens if I can’t afford my self-employed IVA payments?

When you discuss your budget with your adviser, you will need to consider seasonal incomes and fluctuations. In a self-employed IVA, payments can be adapted on a month by month basis based on your forecasted business cash flow.

This will be considered before you enter into an IVA so you can accommodate for difference in income beforehand. However if you go ahead with your IVA and still find yourself struggling you need to talk to your Supervisor as soon as possible. They might be able to arrange a payment break or a payment reduction.

Should your income or expenditure change talk to your Supervisor and they will discuss your options with you.

If you have any other questions about self-employed IVAs and would like to know whether this might be the right solution for you, give our team a call on 0800 316 1833 .

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