IVA, new job and pay increase

Crunchie87

Hi i have a IVA through Creditfix and i currently work for the Local Authority and earn £27000 yearly, i am contemplating leaving this post to go agency, which would mean i go limited company and get paid hours £24ph, if i worked on this rate for a year and minus 6 weeks holiday the salery would be £42624, obviously none of the above takes into consideration tax, national insurance etc. I have £11719 of debt, paying £150PM at the present moment and ill pay a total of £9000 back if i remained on this income. If i get a new job i have to pay 50% of my wage increase, but i have a few questions
1) will i pay £9000 back or £11719
2) can they make me pay more then 50%
3) is this move beneficial
4) if i pay more can i clear my debt in less then 5 years and how long would i have bad credit?

If i have to pay 50% more i estimate paying £801pm :-0 does that seam right??

And how would/could me going Ltd Company affect my IVA as ill be on contract work?

Any help would be MUCH appreciated :-)

Foxy-Stoat_3

Your in the wrong forum, but:

From the date of your first pay packet save 50% of the additional income you earn, assuming your expenses will not increase. Expect to pay this at the next annual review where you will be re-assessed. You will be no better off and will probably pay more than you owed when you finish the IVA, assuming your not near the end as they will reassess the IVA payments and still leave you with the same amount at the end of end month.

They cannot make you pay more than 50% of the extra UNTIL the next annual review where you WILL pay more than 50%, but check the contract as there may be a clause or conditions if you go over a certain value or percentage.

This move will be financially beneficial to you in the short term, up to the next annual review and when you finish your IVA.

Your contract will say you must achieve at least 25% of your debt, but read it carefully, I doubt it will say anything about paying 100%+ of your debt.

£11,000 debt on a salary of £27,000 is low, who recommended you for an IVA?

Ask to see a copy of your new contract of employment, some firms do not like people who have entered into an agreement with creditors, or bankrupts.

Well done for finding a better paid job, rare in these parts !

UpToMyNeckInIt

I will try not to duplicate what you have already been advised.

I too am ex-LA and now working self-employed/Ltd Co.

Are you going to be working under an umbrella company set up by your agency? or setting up your own company? You will usually be far better off doing the latter (trust me, I have worked both ways on a comparable hourly rate).

Assuming you are not going with the umbrella arrangement, my first bit of advice to you: GET AN ACCOUNTANT. Worth their weight in gold. Now that you are self-employed (or will be if you go ahead), you will be amazed at what you can claim tax-relief against, that you cannot as an employee, eg: mileage at 45p/mile and/or other travel expenses to/from your place of work, as well as any travel whilst you are at work (I assume you will be based from home), meals at work, and even a proportion of your gas/electric bill for running your 'home office'.

Fancy a new laptop, camera or any other equipment ...keep the receipt: it all counts as work-related expenditure, which in turn you can claim tax relief against. (May also worth you looking at going VAT-Registered as well, especially if you think you will need to get a lot of extra kit initially).

You should let your accountant know about your IVA, and instruct them to advise you on the most tax-efficient way to keep as much of your income as possible, whilst making your earnings look as small as legally possible on paper (thus minimising any increase in your IVA repayment).

Example: I typically turn-over £50,000, but after the accountant works his (totally legal, I hasten to add) magic, I have a 'taxable profit' of around £30K. It is the taxable profit that your IP will use to calculate your contribution NOT your turnover. The great part is that I get to keep the majority of that 'lost' £20K. Oh, and don't worry about National Insurance: Unless you go with the 'umbrella arrangement' you won't be paying that any more.

Realistically, working in this way, for every £1 that I turn-over (or earn 'gross'), I take home 83-86p.

My IP asks for my most recent accounts and bases my income on those. You of course will not have your first set for at least another 12 Months, so you will have to ask your accountant to produce a 'profit forecast' based on your own circumstances. Your IP should accept this, but check with them to be sure (don't for goodness sake tell them that you are going to be earning £15K more than before, because a) this will not be the case after tax, 'expenses' etc; and b) if you do, they will indeed up your repayment significantly and may do this as soon as you start contracting).

The 50% of extra income / IVA payment uplift part is interesting: Some IP's take the view that they will apply this as per your IVA (and as you have calculated). However some take the view that as your circumstances have changed drastically, ie: you were a Local Government Employee, but you are now self-employed and a Director of your own Company, and will make you complete a whole new income and expenditure calculation. They will then 'start afresh' if you like, in determining your revised, much higher IVA contribution.

This leads me swiftly on to my second piece of advice: Make full use of your 'allowances' when reviewing your IVA. Check out the Stepchange Budget Guidelines Report here.

https://docs.google.com/file/d/0B7LabJy69BP1M0gxeHQ1SDFiN1E/edit?pli=1

Increase your 'allowances' where you think you can get away with it, to off-set your considerable increase in income.

Saying all that, as you have been used to earning £27K, as previously advised, budget for the worse case scenario, and put the surplus £800 or-so, aside. Either way, you should repay your original £11,700 debt, + your IP's fees, and conclude your IVA well before the 5-Year term.

Is it worth it? If you feel that there is plenty of contract work about, and the money is good, then maybe. BUT remember, you may be earning more, but you lose ALL employee benefits: pension, sick pay, holiday pay etc. Personally, I feel it is worth the risk, and am fortunate enough to have stayed gainfully self-employed for the last 7-Years. But I never get used to that feeling of not knowing when the next money is coming in when a contract ends.

Best of luck whatever you decide.