IVAs aren't only for people on a regular payslip. Self-employed people and contractors can use them too, and an IVA can let you keep working while you deal with your debts. The difference is in how your income is worked out and how certain creditors, particularly HMRC, are handled.
Can a self-employed tradesperson get an IVA?
Yes. Builders, electricians, plumbers, mechanics, hairdressers and many other self-employed people in Hartlepool use IVAs. Unlike bankruptcy, an IVA doesn't usually stop you trading.
Working out your income from your accounts
Your contribution is based on your profit, not your turnover. Expect to provide your last tax return or accounts, recent bank statements and a breakdown of business costs. If your income is seasonal, an average over the year is used. You'll also need to keep money aside for your tax bill, and that goes into your budget too.
Tools, vans and equipment
Tools and equipment you need to keep working are normally left alone. A work van is usually treated in the same way, provided it's reasonable for your trade. If you have high-value equipment you don't really need, creditors may ask for it to be sold.
Owing money to HMRC
Income tax, National Insurance and VAT debts can usually be included in an IVA. HMRC is often one of the largest creditors for self-employed people, so its vote can decide whether a proposal is accepted. HMRC deals with IVAs through a specialist team and has its own expectations, including:
- All your tax returns must be up to date before the proposal goes to creditors.
- You must keep up with tax on your current income throughout the IVA.
- If you're VAT-registered, your VAT returns must be filed on time.
Getting your returns in order before you apply improves your chances of approval.
Could a Time to Pay arrangement be enough?
If HMRC is your main creditor and you could clear the tax over a year or two, HMRC's own Time to Pay arrangement may be simpler than an IVA. It's an agreement to pay what you owe in instalments, and it isn't a form of insolvency. It won't help with other debts, though, so it suits people whose problem is mainly tax.
Contract and offshore workers on day rates
Hartlepool's port and the wider Teesside energy sector mean a fair number of people work on day rates, offshore rotations or fixed-term contracts. That kind of work can pay well, with gaps in between.
- Your budget should be based on what you earn over a full year, including the gaps, not your monthly rate while on contract.
- If you work through a limited company, your income from the company, such as salary and dividends, is assessed. The company's own debts are usually separate.
- Tell your supervisor when contracts start and end, so your payment can be reviewed if needed.
Keeping a simple record of your contract dates and earnings makes each annual review much quicker.
Roles at the power station and other vetted sites
Hartlepool Power Station and other sensitive sites in the area require security clearance for many roles. Vetting considers financial circumstances, and an IVA will show on a credit check. Being in an IVA doesn't automatically mean losing clearance, as a managed arrangement often reflects better than unmanaged debt. Follow your employer's rules on reporting changes in your circumstances, and be open with the vetting team.
Keeping business and personal money separate
Many sole traders in Hartlepool run everything through one bank account. That makes it hard for anyone, including you, to see what the business actually earns. Before you apply for an IVA, open a separate account for the business, even a basic one. It makes your accounts clearer, helps your Insolvency Practitioner work out a fair contribution and makes the annual reviews much easier. Keep receipts for fuel, materials and equipment, as they reduce your taxable profit and your contribution.
Council tax with Hartlepool Borough Council
Council tax arrears owed to Hartlepool Borough Council can usually be included in an IVA, but the current year's bill must be paid. If you work from home, check that you're paying council tax correctly; most home-based sole traders don't need to pay business rates as well, but check with the council to be sure.
Is an IVA the best route for a business owner?
If your business has a future and your debts are personal or sole trader debts, an IVA can work well. If the business itself is failing, closing it and considering bankruptcy or a DRO may be more realistic. If you trade through a limited company that's in trouble, the company's debts need separate advice. Compare all your options on our debt solutions page.
Talking it through
Our team is based in Newcastle and handles enquiries by phone and email, so you can fit the conversation around your work. If you're self-employed, have your latest tax return and an idea of your monthly profit to hand. Send the form at the top of the page and choose a time that suits you. There's no charge and no obligation.
Free advice is also available from Citizens Advice Hartlepool and MoneyHelper. Business Debtline offers free advice specifically for self-employed people and small business owners.
Questions from self-employed and contract workers
Can I still take on new customers and jobs?
Yes. You keep running your business as normal. You just need to report your income and tell your supervisor about significant changes, such as taking on staff, buying expensive equipment or switching from sole trader to a limited company.
Can I work outside Hartlepool during my IVA?
Yes. Contract and offshore work elsewhere is fine. Just keep your supervisor updated about your income and address.
What if I have a bad year?
Your payment is reviewed each year. If your profits fall, your supervisor can reduce it or agree a short break. Send your figures promptly so the review reflects your real position.