Can you start a business during an IVA?

Starting a business during an IVA is allowed, but it is one of the bigger changes you can make while in one. Your income becomes less predictable, your access to credit is limited, and your IVA payments still fall due every month. This guide sets out what the rules actually say, how to fund a new business within them, and how to protect your IVA if trading is slow.

Is it allowed?

Yes. There is no legal bar on self-employment or running a company during an IVA.

• The Company Directors Disqualification Act 1986 stops undischarged bankrupts, people under bankruptcy or debt relief restrictions, and people in a debt relief order moratorium from acting as company directors without court permission. It does not apply to IVAs.
• Your own IVA terms, or the rules of your profession, could still restrict you. Read your proposal and check.
• In England and Wales, being in an IVA disqualifies you from being a charity trustee unless the Charity Commission grants a waiver. See your job and your IVA.

This 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?

What do you need to tell your supervisor?

The standard terms for protocol IVAs, which apply from 1 July 2025, say you must keep your supervisor informed of your employment details and any change in employment status. Going self-employed or leaving a job to run a company is exactly that kind of change.

Talk to your supervisor before you make the move, not after. Take:

• your plan, and a realistic estimate of your income for the first year
• how you intend to pay for start-up costs
• what happens to your IVA payment if income is lower than expected

How do you fund a new business in an IVA?

Carefully, because the usual routes are restricted.

Borrowing

You must not take credit of more than £500 without your supervisor’s prior written approval. That covers business loans, overdrafts, credit cards, asset finance, and trade accounts with suppliers where you pay later. Taking it without approval is a breach of the IVA. Lenders will also see the IVA on your credit file, so business credit is hard to get anyway. See credit checks during an IVA.

Your own money

Assets you had when the IVA started are part of it unless they were excluded. Anything worth more than £500 that you receive during the IVA, such as an inheritance or a large gift, can be claimed for your creditors, up to what is needed to repay them in full plus costs. You cannot use either to fund a business without asking your supervisor.

Tools and equipment

Tools, books, vehicles and equipment you need personally for your work are excluded from a protocol IVA, because they would be excluded in bankruptcy under section 283(2) of the Insolvency Act 1986. You also need your supervisor’s written consent before you sell or borrow against anything that is part of the IVA.

Business bank accounts

Your IVA may make opening an account harder. If you owe money to a bank, do not use it for your business account: it may be able to take money from your accounts to reduce the debt (the right of offset).

Sole trader or limited company: what is different?

As a sole trader

The business’s debts are your debts. Anything you owe to suppliers or HMRC after the IVA starts is not in the IVA, so you must pay it as normal. The IVA Protocol lists a sole trader with trade debts among the cases where a protocol IVA is unlikely to be suitable, so if you already trade and are thinking about an IVA, expect questions about your business debts.

Tax is the biggest trap. Under the standard terms, you are responsible for self-assessment and National Insurance on any income that begins after your IVA is approved, and all returns and payments to HMRC due after approval must be made on time. Put money aside for tax from every payment you receive. HMRC repayments are dealt with in a set order, and any surplus that reaches you must be paid to your supervisor.

As a company director

A limited company is a separate legal person, so its debts are generally its own. Your income for the IVA is what you take from the company in salary and dividends, and your supervisor will want evidence of it at each annual review. Be cautious about personal guarantees for company borrowing: if the company cannot pay, the lender may come to you. Discuss any guarantee with your supervisor first.

What happens when the business does well?

Some of the improvement goes to your creditors, and some stays with you.

• At each annual review, your payment goes up by 50% of any increase in your disposable income. You provide bank statements and other evidence of income, such as accounts or tax returns.
• If you keep your job and run the business on the side, the business income is an additional source of income. Under the standard terms, extra income of more than 10% of your normal take-home pay must be disclosed within 14 days, and 50% of the amount above that 10% paid in within 14 days of disclosure.

If the business does very well and you can pay your creditors in full plus the costs of the IVA, the IVA can end early without statutory interest being added. See paying off an IVA early.

What if the business struggles?

Tell your supervisor as soon as you see it coming. The Protocol gives them some room:

• a payment reduction of no more than 20% in total without going back to creditors
• payment breaks of up to 9 months of payments in total over the IVA, with the IVA extended by no more than 12 months to recover them

Arrears equal to three or more months of payments count as a breach. If a breach is not put right, the IVA can be terminated, creditors can pursue the full balance including interest and charges frozen during the IVA, and the supervisor or a creditor can petition for your bankruptcy. See what happens if an IVA fails.

What people commonly get wrong

• “I can’t be a director in an IVA.” You can, unless your own terms or professional rules say otherwise.
• “Supplier credit doesn’t count.” Buying on account is credit. Over £500, it needs written approval.
• “New tax bills go into the IVA.” Tax on income that starts after approval is yours to pay.
• “I’ll tell my supervisor once the business is up and running.” Tell them before you change your employment status.

What to do next

1. Write down your plan, start-up costs and a cautious income forecast, and take it to your supervisor before you make the change.
2. Open a separate business bank account with a bank you do not owe money to.
3. Set aside money for tax from the start.
4. If you are not yet in an IVA and run a business, get advice on which solution suits a business owner. Free, impartial debt advice is available from MoneyHelper, StepChange, Citizens Advice and National Debtline: see where to get free debt advice. More guides are in life in an IVA.