The Taxman Issues For Individual Voluntary Arrangements
Recently changes to the Individual Voluntary Arrangement (IVA) have raised some questions as to their affects on other aspects of the law including taxation. One important issue to consider when submitting an IVA to HM Revenue & Customs (HMRC), or the “taxman”, is if the IVA is reasonable. The HMRC has begun to show a greater degree of caution when accepting IVA’s and this is due in part to the prevailing global financial crisis.
For individuals it does not matter where in the Kingdom you live be it in Leatherhead, Surry doing office cleaning leatherhead for your source of income if you opt for an IVA then you must demonstrate that it can be accomplished, with a realistic schedule. This will help to increase the chances that the HMRC will accept it.
If the debt is less that £15,000, and your tax returns are current, the HMRC will probably view your IVA as reasonable, and will most likely not reject it.
IVAs that are considered unreasonable, and that will likely be subject to close scrutiny and be at risk for rejection, will often be for debts more than £15,000, where debtors'tax returns are not current.
Income is another issue in an IVA. If the income in your IVA is coming from your current business, the HMRC may be concerned about the feasibility of the business to pay its debt.
However, the income issue may be alleviated depending on your business'creditors. As long as 75% of your debt is owed to other creditors besides the HMRC, and those other creditors agree with the IVA’s income proposal, the HMRC should not reject the IVA based on income.
If more than 25% of your debt is owed to the HMRC, then the IVA may be at risk of being rejected, and you may need to consider other alternatives.
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