The self-employed are not immune from debt problems. In fact given the erratic nature of their income, often cash flow problems emerge – bills need paying on time, but income is much less predictable. It only takes a bad couple of months and there can be serious implications for many self-employed (and Company Directors).
An IVA is of course the same product for anyone regardless of their employment status – but for the self-employed it can be more difficult to provide an accurate monthly income figure than for those who receive a monthly pay slip. So the income has to be estimated or averaged or forecasted (or an element of all 3). Almost certainly tax returns will be required. This not only gives a figure for net profit (i.e. after business expenses and tax provision – so the equivalent of bring home pay) but it also allows the Insolvency Practitioner to explore the debtors’ financial relationship with HMRC. It may be that HMRC are a creditor to be included in the IVA, and it is likely that the Insolvency Practitioner will want to ensure funds for tax are set aside during the first year of the IVA. And then of course as income is averaged over the course of a year, it will be expected that the self-employed will save something from the good months to cope during the less good months.
And in lockdown, the self-employed may well have suffered than most. And unlike their employed counterparts it may be less clear what they will be returning to if they have been off work. There is very real uncertainty making debt solutions such as an IVA more difficult. Evidence of current or future work may be required (invoices, receipts etc.). And it may be given the ongoing uncertainty that some informal repayment plan such as a Debt Management Plan (DMP) may be initially a better way forward. This will at least buy some time before we have further insight and evidence of the results of Covid on our business. We cab switch to an IVA once things are clearer or indeed if things don’t pick up – head for bankruptcy. A DMP is flexible meaning we can end it or change the payment level or switch to a different solution anytime.