If you’re self-employed and struggling with debt, you might be worried that your options are more limited than someone in regular employment. Running your own business or working for yourself often means your income can be unpredictable, and that can make debt problems feel even more stressful.
The good news is that yes, you can. Being self-employed does not stop you from getting an Individual Voluntary Arrangement (IVA). In fact, an IVA is often a very good solution for self-employed people who want to deal with their debts while continuing to work and earn a living.
This guide explains how an IVA works if you’re self-employed, what’s different compared to being employed, and what you need to think about before applying.
Does Being Self-Employed Make a Difference?
You do not need to be in employment to start an IVA. What matters is whether you have:
- Some form of regular or predictable income
- Unsecured debts you cannot realistically repay
- Enough spare income, after essential costs, to make a monthly payment
Many self-employed people qualify for an IVA, including:
- Sole traders
- Freelancers
- Contractors
- People running small businesses
The main difference is that your income may vary, and this needs to be taken into account when the IVA is set up.
How Is Income Assessed If You’re Self-Employed?
If you’re employed, your income is usually based on payslips. If you’re self-employed, it’s normally based on:
- Your recent accounts or tax returns
- Your average monthly income
- Your business expenses
- Your drawings or personal income from the business
Rather than using your best or worst month, your adviser will usually look at an average over a period of time to work out what is realistic and sustainable.
The goal is to make sure:
- Your IVA payment is affordable even in quieter months
- You’re not being pushed into a payment you can’t keep up with
What About Business Expenses?
Your legitimate business expenses are taken into account before working out what you can afford to pay into an IVA.
This might include things like:
- Tools or equipment
- Travel costs
- Insurance
- Phone and internet
- Office or workspace costs
Only your personal disposable income, after both business and household costs, is used to calculate your IVA payment.
Can I Keep Trading If I Start an IVA?
In most cases, yes.
One of the biggest advantages of an IVA for self-employed people is that it usually allows you to keep trading and earning money.
This is very different from bankruptcy, which can sometimes:
- Affect certain professions
- Restrict business activity
- Lead to business assets being sold
An IVA is often chosen specifically to protect the ability to keep working.
What Debts Can Be Included?
An IVA for a self-employed person can usually include most unsecured debts, such as:
- Credit cards
- Personal loans
- Overdrafts
- Business loans (if personally liable)
- Bounce Back Loans (if in your personal name)
- HMRC arrears (such as income tax or VAT)
- Utility and supplier arrears
Secured debts, like mortgages or hire purchase, are treated differently and are usually paid outside the IVA.
What About HMRC Debts?
Many self-employed people get into difficulty because of tax bills, VAT, or National Insurance.
In many cases, HMRC debts can be included in an IVA, and HMRC is a very common creditor in self-employed IVAs.
This can be a big relief, especially if tax arrears have built up over several years.
What If My Income Changes?
It’s normal for self-employed income to go up and down.
During your IVA:
- Your income and expenses are usually reviewed each year
- If your income goes up significantly, your payment may increase
- If your income drops, your payment may be reduced
If you have a bad period or a temporary problem, it’s important to speak to your IVA provider as soon as possible. In some cases, short payment breaks or adjustments can be arranged.
What If I Have a Really Bad Trading Period?
If your income drops sharply and you genuinely can’t afford your IVA payments:
- Your insolvency practitioner can look at varying the IVA
- Payments can sometimes be reduced
- In some situations, a short payment break can be agreed
The key is communication. Ignoring the problem can cause the IVA to fail.
What Happens If the IVA Fails?
If an IVA fails:
- You lose the legal protection it provides
- Creditors can start chasing you again
- You’ll need to look at another solution, such as a different arrangement or bankruptcy
That’s why it’s so important to set up the IVA at a realistic, sustainable level from the start.
What Do I Need to Apply?
To apply for an IVA as a self-employed person, you’ll usually need:
- Details of your debts
- Information about your income and expenses
- Your latest accounts or tax returns (if available)
- Details of any assets, such as a car or property
Is an IVA Right for Every Self-Employed Person?
Not always.
An IVA may not be suitable if:
- Your income is extremely low or very unstable
- Your debts are quite small
- You have no realistic spare income at all
In these cases, another solution might be more appropriate.
Being self-employed does not stop you from starting an IVA. In fact, an IVA is often one of the best ways for self-employed people to deal with serious debt while keeping their business or work going.
The most important thing is making sure the solution is built around what you can realistically afford, even when your income varies.
What should I do now?
If you’re self-employed and struggling with debt, you don’t have to face it alone. My Debt Plan offers clear, impartial advice to help you understand your options and find the right solution for your situation.
You can get debt help online or speak to our friendly team for a confidential, no obligation conversation. Call us today on 0161 464 0870 and start taking back control of your finances.
