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I am in an Iva at the moment. The plan states I can earn additional income of 10% of my usual take home pay before I need to make an additional contribution. I have received an annual bonus payment. What figure should be used to calculate the 10%? My annual take home pay or the take home pay of the month in which I received the bonus.

Hi - it is usually based upon your usual (possibly averaged) monthly basic take home pay, as agreed with your IP and which should be the one used for your I&E in calculating your disposable income ( regular IVA payment).

Hi Dave,

Following on from Foggy's advice, the various 'interpretations' of the 10/50/50 rule were discussed on a recent thread here:

http://www.iva.co.uk/forum/topic.asp?TOPIC_ID=56501

The take home pay of the month in which you receive the bonus - assuming that you have the usual IVA Protocol Standard Terms and Conditions.

Interesting thread. I receive various pensions and intermittent part-time earnings. My monthly IVA payment was worked out averaging all sources of income over a year. Is there a risk that now the accounting should be done on a monthly basis? Also, all figures were taken as gross. What happens about tax etc?

If you have a variable income, the only real way is to look at an averaging basis to calculate your basic earnings.

But your earnings should never have been shown gross of tax? Do you pay tax at the normal rate, and is this clearly shown as deductible on your pension and pay statements?

I suspect I have a couple of grey areas that will need to be handled as the IVA proceeds: (1) tax, and, (2) commuting costs (my main part-time earnings can only be achieved after substantial commuting costs into London). My view is that earnings must be considered net of tax and travel before any 10/50/50 calculations kick in, whether calculations are done monthly or annually. In my case, because the pattern of part-time income is feast and famine, annual averaging is the only way that really makes sense, otherwise the famine months would probably break the IVA and I need very careful cash flow management across the year.

I don't agree. By netting off the travel costs you are giving yourself a lower income and therefore lower 10% threshold.

Interesting - let's consider a concrete example. I manage to obtain additional part-time earnings for one month and those earnings will take me above the annual amount used to calculate the IVA payments.

Additional earning in 1 month: £2500
Tax: £500 (I don't need to take NI into account)
Commuting: £600

What I don't know is the order in which these would be taken into account before applying the 10/50/50 custom.

1. One way to look at this is £2500 - £500 tax -£600 commuting = £1400 net 10% = 140 leaving £1260 - 50% is £630 to be paid over, £630 to be kept.
2. another way is £2500 - £500 tax = £2000 net of tax. 10% is £200. The residual £1800 would be £900 50/50. Is the £600 commuting taken off the £1800 before applying the 50/50 (in which case £600 should be paid over), or after (in which case does it come off my 50% or the IVA 50%? Obviously, the most favourable to me is I net the payment to the IVA by the commuting costs, but least favourable to the creditors).

As the saying goes, the devil is in the detail - this is a very interesting and relevant problem to look at. Sorry I don't yet understand how this would usually work in practice.

I always thought that it was worked out after tax - fairly straightforward.

As for factoring in other expenses. Again, that should be ok. Even if you cannot directly apply your more favorable scenario, 'commuting costs' can be allowed for in your i & e allowances.

So surely it makes no difference?

Best check with your IP, but I agree that it would be nice if the contract was clear to start with.

To GD23 - if the commuting costs are a directly attributable expense to the earnings, then your illustration in (1) is not correct as you are allowed to retain 10% of your basic salary which will presumably form a higher benchmark. Send me your basic monthly salary (net of tax) and I will rework for you.