Table of Contents
- What Is a Self-Employed IVA?
- How an IVA Works If You’re Self-Employed
- Benefits of an IVA When You’re Self-Employed
- Things to Consider Before Applying
- Alternatives to a Self-Employed IVA
- Getting Advice to Help Your Situation
Running your own business has plenty of rewards. You have more control over your work, more flexibility with your hours, and the chance to shape your own future. But it can also bring financial pressure, especially if your income is irregular. Many self-employed people find themselves in a cycle of debt, worrying whether there’s a realistic way out. One option that often comes up is an Individual Voluntary Arrangement (IVA). But can you get an IVA if you’re self-employed?
The answer is yes. In fact, there is a version of this debt solution designed specifically for people who work for themselves. It’s called a self-employed IVA, and it can help you manage debt in a way that works with your business rather than against it.
What Is a Self-Employed IVA?
An IVA is a formal agreement between you and your creditors to repay part of what you owe over a set period of time, usually five or six years. At the end of that period, any remaining eligible debt is written off, giving you a fresh financial start. Unlike informal arrangements, an IVA is legally binding, which means once it’s in place, creditors have to stick to its terms.
For people who are self-employed, the arrangement is slightly different to reflect the realities of running a business. Where someone in regular employment might have a fixed monthly repayment, a self-employed IVA can be tailored to suit variable income and ongoing business expenses. Seasonal peaks and quieter months can be taken into account when the repayment schedule is drawn up, making it more flexible for those who don’t receive the same pay cheque each month.
Another important feature is that the IVA recognises your need to keep your business running. For example, if you rely on a business overdraft or trade credit to buy stock or materials, this can sometimes be built into the arrangement so that your ability to operate isn’t undermined. The idea is to help you deal with your debts while allowing your business to survive and hopefully grow.
How an IVA Works If You’re Self-Employed
When you apply for a self-employed IVA, a licensed insolvency practitioner will work with you to put together a proposal for your creditors. This proposal sets out how much you can realistically afford to pay once business costs and essential living expenses are covered. It also explains how long the arrangement will last and what creditors can expect to receive.
If creditors holding at least 75% of your debt value agree to the proposal, the IVA becomes legally binding on all of them. From that point on, your repayments are made to the insolvency practitioner, who distributes the money among your creditors. As long as you keep up with the agreed payments, creditors can’t take further action against you, such as pursuing court judgments or sending bailiffs.
The key difference for self-employed people is that your business finances are taken into account alongside your personal finances. This means a realistic view is taken of your trading income, your operating costs, and any fluctuations you typically experience throughout the year.
Benefits of an IVA When You’re Self-Employed
Choosing an IVA can give you breathing space and a structured way to tackle your debts without shutting down your business. Some of the main benefits include:
- Protection from creditors – once the IVA is approved, creditors can’t chase you for payment or take legal action.
- Affordable repayments – your monthly contribution is based on what you can genuinely afford after expenses.
- Debt write-off – any unsecured debts included in the IVA that remain unpaid at the end are written off.
- Business continuity – you can usually keep trading, which isn’t always possible with bankruptcy.
Things to Consider Before Applying
While a self-employed IVA can be a lifeline, it’s not suitable for everyone. One important factor is commitment. An IVA typically lasts five to six years, and you need to be confident that your business can generate enough income over that period to keep up with the agreed repayments. Missing payments could cause the IVA to fail, which may leave you back at square one.
It’s also worth remembering that an IVA will affect your credit rating. It stays on your credit file for six years from the date it begins, which means accessing new credit, even for business purposes, can be challenging. This doesn’t necessarily prevent you from trading, but it’s something to be aware of if your business relies on borrowing.
There are also eligibility requirements. Most insolvency practitioners will only recommend an IVA if you owe at least £6,000–£10,000 in unsecured debts to two or more creditors. Secured debts, like mortgages or loans tied to assets, aren’t usually included in an IVA, so you’d still need to keep up with those payments separately.
Alternatives to a Self-Employed IVA
If an IVA isn’t the right fit, there are other debt solutions worth exploring. A Debt Management Plan (DMP) may be an option if you want something more flexible and less formal, though it doesn’t provide the same legal protection from creditors. If your debts are mainly to HMRC, a Time to Pay Arrangement might allow you to spread the cost of tax bills over a longer period.
In some cases, bankruptcy may be the more appropriate route, especially if your debts are very high and your business is no longer sustainable. Bankruptcy has more severe restrictions, but it can draw a line under unmanageable debt more quickly than an IVA. For those running limited companies, there may also be restructuring or closure options available, depending on the circumstances.
Getting Advice to Help Your Situation
Debt can feel overwhelming when you’re self-employed. Unlike employees, you don’t always have the reassurance of a steady wage, and financial pressure can spill over into every part of your life. That’s why it’s important to get debt advice tailored to your exact circumstances.
A self-employed IVA might be the right solution, but it’s not the only one. Speaking with a qualified debt adviser can help you weigh up the pros and cons, explore alternatives, and choose a path that balances your business needs with your personal wellbeing.
At PennyPlan, we understand the unique challenges that come with being self-employed and in debt. To learn more about how we can help, talk to our team today.
