As a self-employed individual, managing finances often feels like walking a tightrope.
Balancing personal and business expenses while trying to stay on top of debt repayments can
quickly become overwhelming. Unlike traditional employees, your income may fluctuate,
and you might have unique business-related expenses that complicate debt management.
If you find yourself unable to cope with mounting debts, an Individual Voluntary
Arrangement (IVA) might provide the relief you need. For self-employed UK citizens, an
IVA offers a structured debt solution that allows you to retain control of your business while
working toward financial stability.
In this guide, we’ll take an in-depth look at how an IVA works for self-employed individuals,
its benefits, and detailed tips for navigating the process successfully.
What is an IVA for Self-Employed Individuals?
An Individual Voluntary Arrangement (IVA) is a formal agreement with your creditors to
repay your unsecured debts over a fixed period, typically five to six years. Instead of paying
multiple creditors, you make a single, affordable monthly payment based on your disposable
income. Any remaining debt at the end of the IVA term is written off.
For self-employed individuals, an IVA is tailored to account for the unique challenges of
running a business, such as variable income and essential business expenses.
Key Features of an IVA for the Self-Employed:
You can retain necessary tools, equipment, and assets required to operate your
business.
It protects you from legal action, including court judgments and bailiffs.
Creditors are legally bound by the IVA terms, preventing them from contacting you
directly.
The payment plan is flexible and can be adjusted to reflect changes in your income.
An IVA can be an effective solution for addressing debts while ensuring your business
continues to operate smoothly.
Benefits of an IVA for Self-Employed Individuals
- Business Continuity:
o An IVA allows you to continue running your business, as it doesn’t require
selling off essential tools, equipment, or vehicles. This makes it a practical
alternative to bankruptcy. - Income Variability Flexibility:
o Self-employed income often fluctuates due to seasonal work or market
conditions. An IVA can accommodate these changes, ensuring you’re not
locked into an unmanageable payment plan.
- Asset Protection:
o You can retain critical business assets and personal possessions, such as your
home and car, provided they are essential and within reasonable value limits. - Reduced Stress:
o Once an IVA is in place, creditors can no longer contact you directly or take
legal action against you, offering peace of mind and space to focus on
rebuilding your finances. - Debt Relief at the End:
o At the conclusion of the IVA term, any remaining unsecured debt included in
the agreement is written off, giving you a fresh financial start.
Steps to Apply for an IVA as a Self-Employed Individual
Step 1: Assess Your Financial Situation
Begin by conducting a thorough review of your financial standing. List all your debts,
including business and personal liabilities, and calculate your income. Don’t forget to include
irregular or seasonal income as well as essential business expenses.
Include:
Unsecured debts, such as credit cards, loans, and HMRC arrears.
Monthly income and variations across different seasons.
Essential expenses like business premises rent, equipment costs, and utility bills.
Step 2: Calculate Your Disposable Income
Disposable income is the amount left after covering necessary living and business expenses.
This figure will form the basis of your IVA payments.
Step 3: Work with an Insolvency Practitioner
An IVA requires an Insolvency Practitioner (IP) to assess your financial situation and create a
proposal for your creditors. This professional will ensure your IVA terms are fair and
sustainable.
IVA Tips for Self-Employed Individuals
- Be Transparent About Your Income and Expenses
As a self-employed individual, your income may vary from month to month. To create a
realistic IVA payment plan:
Provide detailed records of your income over the past 12 months.
Clearly document essential business expenses, such as rent, employee wages, and
equipment maintenance.
Highlight any expected fluctuations, such as seasonal income spikes or lulls.
Transparency ensures your IVA plan accounts for your financial reality and avoids setting
unachievable expectations.
- Prioritise Essential Business Costs
An IVA takes into account the costs required to keep your business running. These may
include:
Rent for office space or commercial premises.
Costs of equipment, tools, or inventory.
Wages for any employees or contractors you employ.
Tax liabilities, including VAT and self-assessment income tax.
By prioritising these expenses in your IVA proposal, you can ensure your business remains
operational throughout the arrangement. - Build a Contingency Fund for Variable Income
To manage income fluctuations, set aside savings during higher-earning months. This
contingency fund can help cover IVA payments during periods of reduced income, ensuring
you stay on track with your agreement. - Keep Up with Ongoing Tax Obligations
Tax debts can often be included in an IVA, but it’s crucial to stay current with ongoing tax
obligations to avoid creating new liabilities. To manage this effectively:
Set reminders for HMRC payment deadlines.
Work with your Insolvency Practitioner to factor ongoing tax obligations into your
budget.
Consider hiring an accountant to ensure accurate and timely tax filings. - Monitor and Adjust Your IVA Plan
Regularly review your IVA to ensure it aligns with your current financial situation. If your
income changes significantly—whether it increases or decreases—contact your Insolvency
Practitioner to discuss potential adjustments to your payment plan.
Common Challenges and How to Overcome Them
Challenge 1: Variable Income
Fluctuating earnings can make it challenging to maintain consistent IVA payments.
Solution: Work with your Insolvency Practitioner to create a flexible payment plan.
Keep open lines of communication if your income changes.
Challenge 2: Balancing Business and Personal Finances
Running a business while managing personal debt requires careful budgeting.
Solution: Separate your business and personal finances to ensure clear accountability
for each.
Challenge 3: Understanding the IVA Process
The IVA process can feel overwhelming, especially for those unfamiliar with debt solutions.
Solution: Seek professional advice and ask your Insolvency Practitioner to explain
each step in detail.
Is an IVA the Right Choice for You?
An IVA can be an excellent debt solution for self-employed individuals who:
Have unsecured debts over £10,000.
Struggle to manage debt repayments while maintaining business operations.
Want to protect their business and essential assets, such as vehicles and equipment.
Are committed to a structured repayment plan that leads to debt relief.
If you meet these criteria, an IVA offers a way to regain control of your finances while
keeping your business running.
Final Thoughts
Being self-employed and in debt can feel overwhelming, but an IVA offers a practical and
supportive way to address financial difficulties without sacrificing your livelihood. By
protecting your essential business assets, accommodating income fluctuations, and
consolidating your debts into manageable payments, an IVA provides a clear path to financial
recovery.
Take the first step toward debt relief today by exploring whether an IVA is the right solution
for you. With the right support and a tailored plan, you can regain control of your finances
and focus on what matters most—running your business and securing a brighter future.