If you are struggling with debt and looking for a way to get out of it, you may have considered an Individual Voluntary Arrangement (IVA). An IVA is a legally binding agreement between you and your creditors to pay back your debts over a set period of time, usually five or six years. It can help you avoid bankruptcy and protect your assets from being seized by your creditors.
But what if you have a dream of starting your own business? Is it possible to start a business with an IVA? The answer is yes, but it is not easy. Starting a business with an IVA requires careful planning, preparation, and communication with your insolvency practitioner (IP), who is the person who oversees your IVA.
In this blog post, we will explore some of the challenges and opportunities of starting a business with an IVA, and give you some tips on how to make it work.
Types of Trading Styles While You Are in an IVA
There are different ways of setting up your business while you are in an IVA. The most common ones are:
- Self-employment: This means that you are the sole owner and operator of your business, and you are responsible for all the income, expenses, taxes, and liabilities. You can start a business as a sole trader while in an IVA, but you need to prove that your business generates enough income to cover your IVA payments. You also need to provide regular evidence of your income and expenses to your insolvency practitioner (IP), such as cash flow statements, business accounts, and personal tax returns.
- Limited company: This means that you create a separate legal entity for your business, and you are the director and shareholder of the company. You can start a limited company while in an IVA, but you need to inform your IP and get their approval.Keep personal and business finances separate, and pay yourself a reasonable salary that doesn’t affect IVA payments. You may also face difficulties in getting credit or funding for your business, as your IVA will affect your credit rating.
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Pros and Cons of Starting a Business with an IVA
Starting a business with an IVA can have some advantages and disadvantages. Here are some of them:
Pros
- You can keep trading while paying off your debts: An IVA allows you to keep your business running while you pay back your creditors over time. This can help you avoid bankruptcy, which would force you to close down your business and sell your assets. An IVA can also be flexible and adaptable to changes in your income, as long as you communicate with your IP and follow their advice.
- You can protect your assets from creditors: An IVA can help you protect your assets from being seized by your creditors, as long as they are essential for your business or personal use. For example, if you need a car or a computer for your business, you can keep them under an IVA. However, if you have any non-essential or luxury assets, such as jewellery or expensive furniture, you may have to sell them to raise funds for your IVA.
- You can improve your financial situation: Starting a business with an IVA can help you improve your financial situation in the long run, if your business is successful and profitable. You can use the income from your business to pay off your debts faster, or save up for future goals. You can also improve your credit rating over time, as long as you make all your payments on time and complete your IVA successfully.
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Cons
- You may face difficulties in getting credit or funding: Starting a business with an IVA can make it harder for you to get credit or funding for your business, as lenders will see you as a high-risk borrower. Your IVA will appear on your credit report for six years from the start date, which will affect your credit score and limit your options. You may also have to pay higher interest rates or fees if you manage to get credit or funding.
- You may have to pay more tax: Starting a business with an IVA can affect the amount of tax you have to pay, depending on how you set up your business. Self-employed individuals pay income tax and national insurance on profits. Limited companies pay corporation tax on profits and income tax and national insurance on salary or dividends. You will also have to file annual accounts and tax returns for your business, which can be complex and time-consuming.
- You may have to deal with more stress and pressure: Starting a business with an IVA can be stressful and challenging, as you have to balance your business and personal finances, and deal with the demands of your creditors and IP. You may also face uncertainty and risk, as your business may not succeed or generate enough income to cover your IVA payments. You may also have to deal with competition, regulations, and customer expectations, which can add to your stress and pressure.
Tips for Starting a Business with an IVA
If you decide to start a business with an IVA, here are some tips to help you make it work:
- Do your research: Before you start your business, do some market research and feasibility analysis to see if your business idea is viable and profitable. Do financial planning and budgeting to see how your business will affect your IVA payments. You should also check the terms and conditions of your IVA, and see if there are any restrictions or requirements that apply to starting a business.
- Inform your IP: Inform your IP and get approval before starting your business. Your IP will assess its impact and may request documents. Your IP may adjust your IVA payments or review your IVA more frequently based on your business’s impact.
- Keep records: You must keep accurate and up-to-date records of your business income and expenses, and provide them to your IP on a regular basis. This will help your IP monitor your progress and ensure that you are paying the right amount to your creditors. You should also keep receipts, invoices, bank statements, tax returns, and any other documents that relate to your business finances.
- Seek advice: Starting a business with an IVA can be complicated. Seek professional advice from experts for legal, financial, and practical help. Seek support from mentors, peers, or online forums for shared experiences and insights.
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Conclusion
Starting a business with an IVA is possible but challenging. It requires planning, preparation, and communication with your IP. It also involves some challenges and risks, such as difficulties in getting credit or funding, paying more tax, or dealing with more stress and pressure.
Starting a business with an IVA can have benefits like trading while paying debts, protecting assets, and improving finances. Starting a business with an IVA can be rewarding and fulfilling with a viable idea, hard work, and following IVA rules.
