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Self Employed – Can you do an IVA?

Self Employed – Can you do an IVA?

Self Employed – Can you do an IVA?

If you are self employed or a sole trader and are struggling with debt an IVA could be ideal. However there are various implications you need to be aware of.

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Is an IVA available if you are Self Employed?

There is no reason why you cannot start an IVA if you are self employed or a sole trader. Debts owed to trade creditors and HMRC can be included and once the Arrangement is in place you can continue your business as normal.

Having said that in order to propose the Arrangement you will need to be able to show the income you can draw is both sustainable and sufficient to support the required monthly payment.

You will need to back up the income figures with business accounts and a trading forecast for the next 12 months. These must show that the business is viable and can generate the cash you need.

What if you have just started your Sole Trading Business?

If you have recently become self employed you will not have any past accounts or trading history. You can try to forecast what will happen in your first year but this will probably not be very accurate.

In these circumstances it is unlikely you will be able to apply for an IVA straight away. An Insolvency Practitioner will not want to put forward a proposal to your creditors until they are confident your income figures are accurate.

Given this you will have to delay your application. Generally speaking you will need to be trading for 6 months or long enough to prove that your forecasts are accurate.

You may be under pressure from your creditors. If so one option is a start a short term Debt Management Plan. You can stop this and begin an IVA as soon as you can prove your income is sustainable.

Is your Business Bank Account affected by an IVA?

One of the things you need to consider when starting an IVA is your business bank account. As a self employed person you may have opened a business account with the same bank as your personal account.

This will become an issue if you owe money to the bank in either the form of an overdraft, credit card or loan. The bank will then have to be included in your Arrangement as a creditor.

Where this is the case you will no longer be able to use your business account. Any money paid into it could be taken by the bank to set off against the debt you owe them. As such you will need to open a new one.

You will struggle to open a new business bank account if your credit rating is already poor. If this is the case one option is to open a new basic account for your business transactions.

Can you continue using any credit?

Once you start an IVA it will be difficult to use credit to support your business. Any credit facilities included in your IVA which you have been using will be closed.

On top of that any new applications for credit that you make are likely to be rejected. This is because the Arrangement will be recorded on your credit file and as a result your Credit Rating will become very poor.

Not only will this affect applications for things like a bank overdraft or business credit card. It could also prevent you from opening new trade accounts with suppliers. As such you will have to run your business without credit facilities.

It might be possible to maintain a credit card or overdraft for use within your business if the facility is at zero when your IVA starts. However it would have to be unrelated to any creditor included in your IVA.

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    6 thoughts on “Self Employed – Can you do an IVA?

    1. Dominic says:


      Can I go into an Iva if I have only just gone self employed?

      1. Hi Dominic

        It is unlikely you will be allowed to apply for an IVA if you have only just started self employment. The problem is that unless you will be getting a guaranteed income you have no track record of what you will earn. You will need to get this before making your application to give your creditors confidence that your income (and therefore monthly IVA payment) is sustainable.

        Given this I recommend that you work for 6 months or so before applying. You can review your business performance after that and better understand what monthly payment you can commit to. In the mean time if your creditors are pressuring you I suggest using a Debt Management Plan to give yourself some breathing space while you build up your business.

    2. Nick says:


      I am self employed and have debts that I am struggling to pay. I am thinking about an IVA.

      I have a number of people working for me. A staff member would like me to take a loan agreement on a car for her. (I currently give her a car allowance of £400 PCM, but it would suit her to have a company car instead.)

      Would this be a bad idea, bearing in mind I’m planning an IVA, or, as it would be a business expense, rather than a personal one, would it not be relevant? I operate the business as a sole trader, rather than a limited company.

      1. Hi Nick

        My view on this is that the car finance you are considering would be a business expense and so you would be allowed to continue paying for the car as part of your business expenses if you started an IVA.

        However a word of caution. As a sole trader you would be personally liable for this debt. If the employee leaves or you can no longer afford to employ them you will still be liable for this finance. If you cannot afford to maintain it you would not be protected by the IVA. It might be possible to add the debt to the IVA at a later date but this is by no means guaranteed and would certainly result in an extension to the arrangement. In the worse case it could cause the failure of the whole IVA…..

        My advice would be not to do this. Rather tell your employee to take a loan in her own name. She can pay for it with the car allowance you give her. Then it is at her own risk. As far as I am aware this is the standard way small businesses do things.

        If you would like further help with applying for an IVA please get in touch (0800 077 6180).

    3. Daniel says:

      Hi. If you enter an IVA as a sole trader or partnership do they examine the business accounts aswell as your personal accounts and determine how much you can spend on business expenses ie) computers, overnight expenses etc . or do they purely base it on the wage being drawn and paid towards the iva

      1. Hi Daniel,

        Your business accounts must be provided and considered. In addition you have to do a forecast of business income and expenses for the next 12 months. This is to ensure there is a reasonable prospect of your business being able to maintain both your personal living expenses, a provision for next year’s tax bill and your IVA payment.

        The business expenses are not necessarily questioned or challenged unless they look way over the top. But you have to provide the information. This is both when starting the IVA and every year at the annual review.

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