IVA, new job and pay increase

edited 30 November -1 at 1:00AM in IVA & DRO
13 replies 12K views
Crunchie87Crunchie87 Forumite
6 Posts
edited 30 November -1 at 1:00AM in IVA & DRO
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 :-):o
«1

Replies

  • 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 !
    "Dream World" by The B Sharps....describes a lot of the posts in the Loans and Mortgage sections !!!
  • UpToMyNeckInItUpToMyNeckInIt Forumite
    884 Posts
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    Hi Crunchie, and welcome.

    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.
  • Thanks for the advice-


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

    I went through Money Managed and they advised IVA, i had a DMP but it wasnt working!!

    I want to pay my debt of ASAP.

    I will be going under a umbrella company through PAYE.

    just a few figures i have worked out-

    Currently paying £150pm and earn £27500 (before tax) on average PW with the new job ill earn £640pw, thats £2560pm over a 48 week year. Ive calculated my expenditure to around £1179PM, so i have a excess of £1381 so that divided by 2 is £690. Does that seem right? would i add on the original £150 i was paying too?

    I owe £11719 and the fees are £3038 so thats £14757, ive paid off £700, so owe now £14057 so technically speaking i could have all this paid off in 20 months???

    At the review following my next one, are they going to sting me for the excess money i have?? as i still come out £690 better as they can only take 50%

    Sorry hurting my head, im crap with maths and i dont have a clue what i am doing and the lady dealing with my IVA decided to leave last month!!! without telling me!! so i am waiting to hear back from the company!!

    Kindest Regards!!
  • I dont think you have grasped what an iva is.

    Your original debt was £11k...as long as you achieve at least the minmum your IP agreed then it will last 5 years if no mortgage. If you manage to pay all £11k in say 3 years, you will still be tied into the IVA for another 2 years so you will likely pay back more than your debt plus fees.

    If you are able to get say £6000 from a family member offer that as a full and final payment. They may acept it and you can move on.

    Sounds like you should of taken a DMP rather than an IVA as the debt level is too low.
    "Dream World" by The B Sharps....describes a lot of the posts in the Loans and Mortgage sections !!!
  • So basically i owe- £14757, ive paid off £700, and if i pay £640pm over the next 4 years and 7 months i could pay back £35200???

    REALLY?!?!? thats £20000 more then my debt!!
  • so i have managed to speak to my new case manager and i got the following reply-

    If and when you were to change jobs we would need to do a new income and expenditure review for you. I think the 50% you are referring to that is in your proposal, refers to overtime, not a general increase in income. For that reason, we would likely need to increase your contribution as it is you surplus income. Any changers in your expenditure would also be taken into account, however, given the amount you’re talking about increasing by, it would mean a significant increase.

    If you’re contributions were increased by this much you would then need to pay back 100% of your debts plus our fees. If this was more than the 5 years, then you would stop at the 5 year point.

    If this is a factor in your decision, then It may not be worth your while to accept the new job. As to the IVA affecting your application, this is unlikely. On a credit search, it would show as a solution, there wouldn’t be any specifics. You do not need to declare that you’re in the IVA, however you do need to tell them if the ask you directly.


    to which i replied-

    Currently paying £150pm and earn £27500 (before tax) on average PW with the new potential job ill earn £640pw, thats £2560pm over a 48 week year. Ive calculated my expenditure to around £1179PM, so i have a excess of £1381 so that divided by 2 is £690. Does that seem right? would i add on the original £150 i was paying too?

    I owe £11719 and the fees are £3038 so thats £14757, ive paid off £700, so owe now £14057 so technically speaking i could have all this paid off in 20 months???

    my contract states 'in the event that my surplus income has increased, whether through increases in my basic pay or any routine over time included in the original surplus calculation, or through reduction in personal expenses, i will increase payments from the anniversary of the arrangement by 50% of the increased surplus'.


    But your telling me you could potentially take £1380 off me per month?!?!

    Then i have been informed i could make over payments, and even if i have paid all my debt + fee's off before the 5 year period i am legally supposed to keep on paying!! so basically if i take this job, and your taking £1380 off me per month over the remainder of my IVA (4 years 7 months) i could end up paying £75900????



    does that seem right???
  • Ive had this reply....

    I’ve had a look through your proposal and it would just by 50% of the increase. And no, if your contributions increased to the extent that you were paying back more than you owed, then we would look to close the IVA early.
  • Crunchie87 wrote: »
    Ive had this reply....

    I’ve had a look through your proposal and it would just by 50% of the increase. And no, if your contributions increased to the extent that you were paying back more than you owed, then we would look to close the IVA early.

    Did you get this in writing?
    "Dream World" by The B Sharps....describes a lot of the posts in the Loans and Mortgage sections !!!
  • edited 28 November 2013 at 9:59AM
    UpToMyNeckInItUpToMyNeckInIt Forumite
    884 Posts
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    edited 28 November 2013 at 9:59AM
    Foxy-Stoat wrote: »
    I dont think you have grasped what an iva is.

    Foxy: Your original debt was £11k...as long as you achieve at least the minmum your IP agreed then it will last 5 years if no mortgage. If you manage to pay all £11k in say 3 years, you will still be tied into the IVA for another 2 years so you will likely pay back more than your debt plus fees.

    If you are able to get say £6000 from a family member offer that as a full and final payment. They may acept it and you can move on.

    Sounds like you should of taken a DMP rather than an IVA as the debt level is too low.

    Foxy: Your posts are normally spot-on, but with respect, the above advice is very mis-leading. It could be mis-interpreted, suggesting the OP will be repaying their IVA potentially at £800+ pcm for the whole 5-Year duration.

    In fact, all the OP owes their original £11,700 debt + IP fees - nothing more, nothing less. (As has been clarified by their IP).

    I think (hope) what you were eluding to is that, despite settling the IVA early, the OP's credit file will still be damaged for the original 6-Year duration. However, it is also worth pointing out that upon settling the IVA early, the OP will immediately be removed from the insolvency register.

    Your suggestion though that the OP seeks to propose a F&F is a good one, and may be worth the investigating.

    Lamenting about the DMP is academic - the OP has an IVA, and that is that. (Though I too am surprised that an IVA for this amount was considered viable - not what the various guidance etc. that I have come across suggests). I suppose if the OP's debts were with very-high interest creditors: PDL's, sub-prime credit cards, then they could have been paying a considerable amount of interest on a DMP.

    Crunchie: Check your IVA paperwork, where your IP's fees will be listed: £3-5K is the norm, and possibly a bit less for a small IVA like yours.

    Sounds like you will be debt-free then in 18 Months or so. Well done!!!

    PS: The 'Umbrella' arrangement is fine short-term, (I know what a big step it is to go from 'employee' comfort zone, to relatively risky 'self-employment', and there are a whole new set of tax rules - and loop-holes to become familiar with. So anything that makes the transition more convenient is a bonus). But I'd still advise seeing an accountant, and going your own way if you are planning on making a career out of contracting. (My Umbrella firm used to charge me £30 per weekly invoice. My accountant's fees are about 2/3 of that, I claim far more in tax reliefs etc, whilst looking 'worse-off' on paper, thus minimising my IVA repayment).
  • I hope you are right Neck......I suppose no one goes into an IVA with any hope of paying back any where near 100%, most only get to 25-30%, mine made just over 31% but the debt was a lot more than Mr Crunchie's here, hence why I was surprised that he is in one with his wage and debt level, personal circumstances I guess.

    If the new case manager put what they said in writing, which may or may not be against what is stated in his IVA contract, then he may or may not have a fight when the OP has paid £14K. They may of given him the wrong advice on the phone or in writing and the contract is what matters.

    The IVA isn't designed to say, you owe £11,000, IVA fees are likely to be £4,000 so you owe £15,000 divided by 60 payments = £250.00 a month please. Its you can afford to pay back £150 (say) subject to change at annual review....oh you get a pay rise, you can afford to pay £900 a month now until the end of the IVA.....cost of living goes up so your payments are reduced. etc etc. They are designed to be flexible and affordable. If you pay back 25%, 50%, 75%, 100% the its all good.

    I cannot remember seeing anything in the contract about what happens when you reach 100% plus fees, anything in yours?
    "Dream World" by The B Sharps....describes a lot of the posts in the Loans and Mortgage sections !!!
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