can a self employed person take on a iva ?

[sraj]

can a self employed person take on a iva ?? or is it only for people who have jobs with pay slips? please advise thank yo

[Skippy]

Hi Sraj and welcome to the forum. Yes, a self employed person can enter an IVA - I seem to remember reading that they were originally created to enable sole traders to continue trading. I don't know exactly how they work, but I think an IP would expect to see books and also projected figures for the business. Sorry I'm being vague, but I'm sure Melanie or one of the other experts will be along to explain properly shortly.

Yesterday is history, tomorrow is a mystery, today is the present - a gift to make the most of.

View my blog at http://skippy13.blogs.iva.co.uk/

[chris_]

My IVA was in 2001 and I don't think anything has changed since then - the only difference I can see is that instead of wage slips etc being handed over, you have to give an annual statement of self emplyed income.

Your supervisor or creditors can ask for access to your books at any time. (though I have never been asked for them)

When you put your proposal together you will have to show that your business is able to continue and supply you with enough income to pay your IVA.

WORD OF WARNING FOR THE SELF EMPLOYED - your income will fluctuate due to the nature of being self employed but your IVA payments will not - I have found myself struggling on more than one occasion because of this, and to make matters worse if you have a good period your creditors will want 50% of the excess profit which they do not give back if you then have a bad period!!.

As in all IVA's (he says in hindsight!) do not be too optimistic with your business projection, you are not trying to impress anyone, just make realistic debt payments - make sure that you use lower estimates not higher when forecasting your potential business income.

An IP will be able to advise you with this better than I - but that wasmy experience. I made forecasts based on the previous year before I had two companies go bust on me, but I never ever got back to that level of trade - and as a result I had to lay staff off and work even harder myelf just to patch the holes. I can honestly say that for the last six years it has been one long struggle due to up and down income.

Chris

[MelanieGiles]

Hi sraj

Good to hear Chris' experiences - specially his word of warning. In my self-employed proposals we always allow for leeway in fluctuating income, and allow payments to be made on a quarterly basis as well as monthly. This seems to work quite well, and I have rarely had a self-employed IVA fail.

Your IP will want to see evidence of your earnings, as well as forecast trading projections to ensure that you are earning the level of monies required to fund your contributions.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[chris_]

Wow Melanie, where were you 6 years ago !

When my IVA proposal was being put together I had to give 5 years worth of cash flow/profit/loss estimates and my IP never questioned anything that went on there at all, nobody said 'oh I think you can add more for that' or 'we think that's a little too much' I was just told to do make a best estimate.

In hindsight I think I was maybe a little too honest for my own good.

I pointed out that the nature of my business was not like say a plumber where they would have lots of customers and lots of invoices coming in. We had just a few customers, but with larger invoices - if one customer didn't pay me on time it could wipe out my entire month's income.
The fact that at the end of a year it all balances out is irrelevant in the middle of the year.

I pointed out that I could no more make anything near an estimate of my business 5 yrs down the line than I could have made one 12 months before when everything was going swimmingly.

My IP made no suggestions, and offered up no solutions either, he just said that he would review it every year - but of course all he meant by that was that he would review my annual statement to see if I could pay more!!!.

Even now when I look back, last years income was a third of that 6 yrs ago - no one has ever questioned it. - (my annual statement of course shows the reduced costs as well)
The nature of my business is so different to 6 yrs ago that I am surprised no one at the IP or the creditors have questioned that either.

Self employed people need flexibility in their IVA's and in my case it has been about as rigid as you can get.

I have constantly been of the opinion that my IVA once agreed, was put on a shelf somewhere out of the way, dusted off once a year to do the annual report and to stick in the IP's charges, and then stuck back on the shelf again.

If my IVA had taken account of fluctuating income I don't think I would have struggled anywhere near as much as I have. For example 2 yrs ago another customer went bankrupt on me owing me several thousand pounds - there was no provision in my IVA for bad debt and I needed the ability to stop or reduce payments for a while until the next cheques came in.

A flexible IVA for the self employed......that is the sort of thing I dream about on a night.

[chris_]

Another word of warning

If you have HMRC debts beware that they can put future estimates of tax in your IVA.

If you say in your forecasts that you will earn 'X' and pay 'Y' in tax make sure that you do because if you don't they will not reduce the amount you pay.

It becomes part of your IVA and set in stone.

I had 3 payments of £3,000 put into my IVA to cover estimates of income tax, but I naively thought that as estimates they would be altered to reflect actual tax.
If you do your self assessment and tax is more then you pay the extra, but if it is less - tough!!

Nobody came up with how I would fund the shortfall in actual tax and estimated tax either. They all seemed to miss the point that if you are honest with your IVA then you won't have any spare cash to pay the difference.

The staement 'It's in your IVA and you have to pay it' you get when you query it is ever so helpful.

Bitter!... ME!.... Nooooooh.

[Adam Davies]

Hi Chris
Yes some interesting points regarding income and something for self employed to consider before starting an IVA.
It would be good to see allowances built into IVA proposals to cover changes in mortgage interest rates and income fluctuations for self employed.
Regards


Andy Davie
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(aka Neverending)

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