Can I Get An IVA If I’m Self Employed?

When it comes to managing your debt, are there different rules if you’re self-employed? And if you do choose the IVA route, how might it affect your business?

More people than ever work for themselves. Around 15% of the UK workforce is now classified as self-employed, compared with 12% in 2001, yet for years the self-employed have faced higher debts than the employed.

Back in 2013 The Guardian reported on how the self-employed were “struggling with debts vastly beyond their earnings.” Citizens Advice claimed the self-employed were as likely to be in debt as the unemployed. It seems little has changed, with the Money Advice Trust reporting in late 2018 that 61% had used personal credit to cover business debt, and that 23% owed more than £30,000.

Why do self-employed people face greater debt?

Generally speaking, if you’re employed you don’t have to worry about being paid on time and your wage is likely to be much the same from month to month. In contrast, many self-employed workers face a constant battle to get paid on time (or at all) with 41% of UK freelancers consistently paid late. Earnings are irregular and as new regulations bite – such as the recent changes to rules affecting subcontractors – many self-employed people are finding the work they did have is suddenly evaporating, leaving them with even greater debt issues.

But if the chances of falling into unmanageable debt are greater if you are self-employed, at least there are routes out of it.

Can I get an IVA if I’m self-employed?

Yes, usually. If there’s going to be an issue, it’s likely to come with the requirement to keep making regular payments towards your IVA. For the IVA to be approved your insolvency practitioner will need to be assured that you can keep making payments. That could be difficult to prove if:

• Your income fluctuates greatly
• You’ve only recently set up in business and have no accounts to show a track record of income

If you can, try to build up that track record before you apply for the IVA. A full year of accounts would be ideal but 6 months may be enough to convince your practitioner. In the meantime, consider a debt management plan to help you in the short term.

What debts will my IVA cover?

You’ll be able to include debts connected to your business as well as personal debts. Tax, VAT and NI arrears can all be included, together with bank overdrafts, credit card loans, car loans and other unsecured loans.

I rent an office. How will my IVA affect that?

If you rent an office, workshop or any other premises, you’ll need to check that there’s no clause in the lease agreement regarding IVAs. If there is, you may be required to forfeit the lease. Even if there is such a clause, however, it’s worth speaking with your landlord because whilst they may retain the right to terminate the lease, that doesn’t necessarily mean they will. Naturally, if you can avoid falling behind on the rent it will help your case.

Your rent will usually be an allowable expense in the budget you agree with the insolvency practitioner, so as long as your lease allows your IVA, you should be able to stay.

How will my assets be affected?

Your creditors stand a much greater chance of getting a proportion of their money back if you are able to keep earning. For that reason, you’ll usually be allowed to keep assets you need to operate your business. If you operate a workshop, for example, you’ll usually be able to keep your tools and equipment. And if you need to travel for your work, you’ll be allowed to keep a vehicle too – although you may be required to downgrade if your current vehicle offers a level of luxury that’s not essential for you to carry out your work.

If you work from home you wouldn’t typically be required to sell it, although it’s very rare to lose your home with an IVA even if you don’t use it as your workplace.

If you have more than £5,000 worth of equity in your home, however, you may be asked to either release a proportion of the equity in your home or pay for a further 12 months, extending your IVA from five years to six.

Can I start a business whilst I have an IVA?

Yes. There’s nothing to stop you launching a new business whilst you’re under an IVA – which is a major difference from bankruptcy. Be aware, though, that if you need credit to get your business idea off the ground you’ll need your insolvency practitioner’s authority to apply for anything over £500.

In addition, your damaged credit rating may make it much harder to find affordable credit.

Should I keep my existing bank account?

If you’re significantly overdrawn, you may be better off opening a new business bank account and including the overdraft (and any other outstanding bank charges) in your IVA.

That’s because banks operate a ‘right to offset’ which means they can use money in one account you hold with them to pay off debts in another. As you’ll want to keep tight control of all the money you have coming in and out, it will often be better to switch.

Can I get an IVA if I run a business in Scotland?

No, but you can apply for a Scottish trust deed (also known as a protected trust deed) which operates in a similar way. Find out more about self-employment and trust deeds here.

IVA FAQs

Then, to find out whether a protected trust deed could be the right route out of debt for you, talk to us.