Individual voluntary arrangements are an excellent way for UK residents to consolidate their personal debts (and personally guaranteed business debts) while protecting their assets.
Self-employment has its challenges, from seasonal incomes to general income loss from lost contracts, which is why you need to seek financial assistance.
That may sound appealing to you, but how easy is this process for business owners? And how does it affect self-employment?
If you’ve been pondering those questions, then this article is for you.
We’ll cover the details of a self-employed IVA, from eligibility to how the process differs from IVAs for the employed.
From sole trader tradesmen to directors of corporate businesses considering an IVA, we’ll cover everything you need to know.
Self-Employed IVAs – What are they?
Self-employed IVAs, as mentioned in the name, are uniquely for the self-employed, and therefore, the process from assessing eligibility to the reviewing stage is designed to ensure an IVA is the correct debt solution for your personal circumstances.
Differences between self-employed IVAs and standard IVAs
Although similar to a traditional individual voluntary arrangement, IVAs for self-employed individuals do have some unique differences and considerations.
Business Continuity
In a standard IVA, business continuation does not need to be considered. However, self-employed IVAs are specifically structured so that your business can continue to trade while addressing debt problems.
This means taking into account things that would not usually be considered, including;
Maintaining relationships with key suppliers
Keeping necessary assets and equipment that you require to carry out services
Managing your business bank account
A self-employed IVA is designed to provide sufficient financial flexibility to maintain the business without constraints that ultimately hinder its performance and exacerbate your financial situation.
After all, your business is your primary source of income, and it will allow you to maintain your IVA payments.
During their review process, our IVA team will consider all the above elements to ensure the solution is tailored precisely to your circumstances.
Supporting Documentation
For traditional IVAs, your documentation mainly focuses on your personal finances. This typically includes documents such as your monthly payslips and bank statements, which provide a snapshot of your regular income and outgoings.
IVAs for self-employed people require slightly different documentation due to the nature of your work.
Instead of payslips, you’ll usually provide business accounts and self-assessment tax returns showing how your business performs.
The IVA caseworker will review your seasonal income fluctuations alongside future projections to consider the ebbs and flows that are natural in self-employed income. This will allow our team to create a customised payment plan to support your personal and business requirements.
How does a Self-Employed IVA impact my business?
The answer to this can vary depending on your industry, position, licence and regulatory requirements.
For most self-employed applicants, the debt solution will not affect your ongoing business.
Continuing to trade is a fundamental principle of a self-employed IVA. The solution is specifically designed to help you resolve your finances, not to add further concern.
Managing Business Accounts
Managing your business bank account during an IVA remains under your control.
You’ll continue operating the account, managing cash flow, and making day-to-day financial decisions.
Supplier Relationships
Essentially, in a self-employed IVA, not all creditors are treated equally.
Although some creditors might be within your IVA, arrangements such as prioritising the full payment of essential suppliers to maintain key relationships can be made.
Therefore, a self-employed IVA can actually help stabilise key supplier relationships, allowing your business to run smoothly.
Licence and Certification Considerations
If your work requires professional licenses or certifications, further research may be necessary to determine whether an IVA could affect your continued membership.
Many professional bodies have become more lenient in understanding an IVA can be a responsible way to address financial problems.
To be sure, mention the accreditations you are querying if affected to our team, and they’ll help guide you to the correct information.
Is a Self-employed IVA right for me? Making the right decision
IVAs, whether employed or self-employed, can be a welcome relief for your financial affairs and put you on a sustainable path to being debt-free.
However, deciding whether a self-employed IVA is the right solution to consolidate your unsecured debts would require more consideration of your unique personal circumstances.
This would mean considering the advantages and disadvantages, which we’ll discuss in this section.
Advantages of a Self-Employed IVA
You can still be a company director
A considerable benefit of a self-employed IVA is that you can be appointed or continue to be a company director.
In some other debt solutions, this is not possible.
Debts into one affordable monthly payment
Business can often be a juggling act managing cash flow and payments to your various creditors. When added into this your personal debts, it can feel overwhelming.
An IVA can not only consolidate your unsecured debts into one payment, but it will also be an amount that takes into consideration your income and outgoings to ensure it is a sustainable monthly payment.
Creditor contact is handled by the Insolvency Practitioner
An IVA is a legally binding agreement that instructs your creditors to deal with your appointed IVA company instead of contacting you.
When payments are missed and defaults appear, having someone else manage creditor contact can be an extremely welcome relief and weight off the shoulders.
Write off a percentage of the debt owed
In most circumstances, your monthly payments in your agreed repayment schedule do not total the total debt owed.
Upon satisfying and completing your IVA, any outstanding amounts are written off.
The percentage of this amount can vary depending on your debt level and your repayment amount.
Potential challenges to consider
Your Personal Credit Rating Will Be Affected
As you will be defaulting on your agreed contractual repayments with your creditors, your credit file will be negatively impacted.
However, if you have already been missing payments, your credit rating will have been adversely affected.
It Will Be More Difficult To Obtain Credit
As your credit file has been negatively impacted, it will be harder to obtain credit for items such as store or credit cards.
However, as mentioned previously, this may already be the case if you have missed contractual repayments.
Making Other Company Directors Aware
If there are more than just yourself as a director, you must make the other directors aware of your intention to enter an IVA.
Within their Articles of Association, some companies state that directors cannot enter into any debt arrangement such as an IVA or Bankruptcy.
You Are On An Insolvency Register
As an IVA is a form of insolvency, you are placed on an insolvency register.
However, although a public register, people are unlikely to stumble across the site unless they are actively searching for it.
Alternative Debt Solutions
While an IVA can be highly advantageous for self-employed individuals, it is always wise to explore other options to ensure that one best suits one’s needs.
Debt Management Plan (DMP)
Unlike the formal IVA, a debt management plan (DMP) is an informal arrangement between you and the companies you owe money to.
Only covering your unsecured debt, a debt management plan can provide welcome relief to financial issues.
Read more about debt management plans here.
Debt Relief Order (DRO)
A debt relief order (DRO) is a legally binding agreement for people with no assets and under £50,000 of debt.
There are strict criteria you need to be eligible for, and you must adhere to certain restrictions.
Read more about debt relief orders here.
Bankruptcy
Bankruptcy is a legal process that eliminates your debt, but certain restrictions are imposed.
Any assets you possess may be sold to free funds to repay debts.
Read more about Bankruptcy here.
The IVA Application Journey
So, after careful consideration, if you have decided that a self-employed IVA is for you, then it is now time to apply for an IVA.
Initial Consultation
The first step is to speak to our friendly IVA assessment team. The debt advisor will assess your financial circumstances and ask questions to help us determine your eligibility for certain options.
Once you receive the options you are eligible for, you can now decide which is the best solution for your personal circumstances.
If you have decided that the IVA is the most appropriate solution for you, the advisor will ask for some documentation to help us present your case for approval.
Documentation Required
Documents that are required on a self-employed IVA can vary as each business is run in different ways.
The primary considerations are usually;
Proof of income (self-assessment tax return, company accounts)
Proof of debts ( we do this with you via a soft credit search)
Proof of expenditure in the form of bank statements
Mortgage statement or proof of tenancy
Putting forward your IVA proposal
Now we understand your financial circumstances and have documents to evidence this to your creditors. Our team will draft a proposal to put forward to your creditors seeking approval for an IVA.
You will have a chance to review and sign this before we do so, and it forms a legally binding agreement between you and your creditors.
Creditor Negotiations
Now your creditors are in receipt of your IVA proposal, a date is set for your meeting of creditors (MOC).
Although it is no longer an actual meeting, it is still a deadline for your creditors to vote in favour or against approving your IVA application.
For your self-employed IVA to be accepted, we need at least 75% of voting creditors to accept the proposal for it to be approved.
The IVA process from application to approval generally takes 21 to 28 days.
Self-Employed IVAs – Conclusion
A self-employed IVA can be an excellent solution for business owners who need help with their financial woes.
It allows you to combine all your unsecured debts into a single monthly payment that protects your personal assets whilst allowing your business to continue trading.
In some circumstances, certain business assets can also be protected to that are necessary for your ability to continue to trade.
However, there are some challenges to consider that you need to apply to your own circumstances to understand how they will affect your life moving forward.
Seeking Professional Advice
You should always seek professional debt advice before undertaking any debt solution.
Here at PennyPlan, we’ll provide you with all the information you need to decide on the best course of action.
Additionally, we also understand the mental health issues being in problem debt can cause. We’re proud to say we are the first debt solutions company in the UK to provide free mental well-being services to all our clients on IVAs.
This platform allows you to resolve the negatives causing or as a result of debt, enabling full rehabilitation from the financial woes and a more positive outlook moving forward.
Contact our team today at 0161 808 8811 to discuss your options for debt freedom today.
