Can you get an IVA if you are self-employed?

Most guides to IVAs are written for people on a salary. Self-employment changes three things: your income goes up and down, your business may owe money as well as you, and HMRC is often one of your largest creditors. This guide covers each, for people who are already self-employed and thinking about an IVA. If you are in an IVA and want to start trading, see starting a business during an IVA instead.

Can a sole trader get an IVA?

Yes. Business Debtline, the free debt advice service for self-employed people run by the Money Advice Trust, says an IVA can be set up if you are “a sole trader or partnership and have business or personal creditors, or both”.

What changes is the type of IVA. Most consumer IVAs follow the IVA Protocol 2025, a standard framework with fixed terms. The Protocol lists a “sole trader with trade debts” among the situations where a protocol IVA is unlikely to be suitable, and says people it does not suit may benefit from a bespoke IVA or another debt solution.

A bespoke IVA works under the same law, the Insolvency Act 1986, and creditors vote on it in the same way. The difference is that its terms are written for your situation rather than taken from the standard set, so read them carefully. Payment length, how income is reviewed and what happens to business assets can all differ from what you read about protocol IVAs.

If you are self-employed but your debts are personal ones, such as credit cards and loans, a protocol IVA may still be possible. The Protocol says that if you are self-employed or your income may be uneven, this should be noted in the proposal.

IVAs are available in England, Wales and Northern Ireland. In Scotland, see debt solutions in Scotland.

What about partners and company directors?

• Partners. Business Debtline says an IVA for a partner “must take into account your personal liability for debts that the partnership owes”. In an ordinary partnership, every partner is liable jointly with the others for the firm’s debts, so this needs specialist advice.
• Limited company directors. A company is a separate legal person. Business Debtline says an IVA can suit a director with personal debts they cannot pay, but “An IVA cannot be used to deal with the debts of a limited company.” If you gave a personal guarantee for company borrowing and the lender has called it in, that becomes your personal debt. An IVA does not by law stop you being a director.

For debts owed by the business itself, see business and self-employed debt.

Can you keep trading during an IVA?

Usually, yes. Business Debtline lists as an advantage that “An IVA may mean that you can keep certain essential assets and keep your business running.” That is a real difference from bankruptcy, where gov.uk says a business is “very likely to be closed” unless the trustee keeps it open. See IVA or bankruptcy?

Trading on comes with conditions you have to manage yourself:

• New business debts are not in the IVA. Anything you owe suppliers or HMRC for trading after the IVA starts has to be paid as normal.
• Credit is limited. Protocol IVAs restrict credit of more than £500 without your supervisor’s written approval, and buying from suppliers on account is credit. If yours is a bespoke IVA, check its own credit term. See borrowing during an IVA.
• Banking. Business Debtline says you will need a basic bank account “which is separate from all your debts”. A bank you owe money to may be able to take money from your account, so do not use it for your business takings. Bank accounts in an IVA explains why.

What happens to your tools, van and business assets?

The standard protocol terms exclude anything that would be excluded in bankruptcy under section 283(2) of the Insolvency Act 1986. That covers “such tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him in his employment, business or vocation”. A bespoke IVA sets out its own treatment of assets, so check what yours says.

So the van a plumber drives to jobs, or the tools a decorator uses, are likely to be safe. Things that are not necessary for you to work personally, or are worth far more than a reasonable replacement, can be questioned. Other business assets, such as stock, spare equipment, money built up in the business or a second vehicle, are things the insolvency practitioner will ask about and may include. List everything, and ask in writing how each item will be treated before you sign.

Once the IVA starts, the standard terms say you need your supervisor’s written consent before you sell, charge or otherwise dispose of any asset that is part of the IVA.

How are payments worked out when income goes up and down?

Your payment is based on what the business actually leaves you after its costs, and what your household needs to live on. Expect to show accounts, tax returns and bank statements, both when the IVA is set up and at each annual review.

Uneven income is the main reason self-employed IVAs struggle. Business Debtline says income that varies through the year “can make it difficult to keep to the payments”, but that an insolvency practitioner “may be able to set up an arrangement which allows you to pay an agreed amount each year”.

If trading falls away during the IVA, tell your supervisor early. In a protocol IVA the supervisor can agree payment breaks and reduce payments by no more than 20% in total without going back to creditors. Arrears of three months or more count as a breach. See what happens if an IVA fails.

How does HMRC treat a self-employed IVA?

HMRC votes on your proposal like any other creditor, but it publishes what it expects. It says it will not support a proposal unless there is “full and honest financial disclosure”, and it expects your tax returns to be up to date, the proposal to say you will pay all future tax “in full and on time”, and the best offer first time. It votes against proposals where there is “an inability to pay future ongoing tax liabilities”.

The standard protocol terms add some specific duties. If yours is a bespoke IVA, check its terms for the equivalent:

• any overdue returns must be sent to HMRC within 3 months of approval
• all returns and payments due after approval must be made on time
• you are responsible for Self Assessment and National Insurance on any new source of income that begins after approval
• creditors’ ordinary dividends wait until HMRC has received your Self Assessment return for the tax year the IVA was approved in, so a late return holds up the whole IVA
• tax refunds for the period before the IVA go first against HMRC’s claim, and any surplus paid to you must be passed to your supervisor

If you are VAT registered or have employees, VAT and tax you collected for others, such as PAYE deducted from employees’ pay and CIS deductions, rank as secondary preferential debts. An IVA cannot pay preferential debts behind ordinary debts unless the creditor agrees. Self Assessment income tax is not preferential.

Citizens Advice says an IVA might not be the right option if most of your debts are tax. If your main problem is a tax bill, HMRC’s Time to Pay arrangements are covered in owe HMRC money?

What do self-employed people get wrong about IVAs?

• “My business debts and personal debts are separate.” For a sole trader they are all your debts. For a company director, they are not.
• “The standard IVA terms will apply to me.” A sole trader with trade debts is likely to need a bespoke IVA with its own terms.
• “I can catch up on my tax returns later.” HMRC expects them up to date before it will support a proposal.
• “A good year means I can relax.” Put money aside for tax from every payment you receive, because new tax is not covered by the IVA.

What to do next

1. Bring your tax returns up to date and gather your last two years of accounts and bank statements.
2. List every debt, and mark which are business and which are personal, including any personal guarantees.
3. List your tools, vehicles and equipment, and what you need to keep working.
4. Get advice before choosing. Business Debtline gives free advice to self-employed people, and free, impartial debt advice is also available from MoneyHelper, StepChange, Citizens Advice and National Debtline: see where to get free debt advice. An insolvency practitioner will assess whether an IVA is suitable.

For more on working during an IVA, see life in an IVA. If you use our checker, we may pass your details to a licensed insolvency practitioner or debt adviser.