Is tax debt owed to HMRC included in an IVA

You can include tax debt owed to HMRC in an IVA. The solution gives a legally binding way to repay this and other personal debts over 5-6 years based on a manageable and affordable monthly payment.

Key Takeaways

• An IVA can help write off self assessment tax arrears. The Arrangement will mean you break the cycle of spiralling HMRC debt.

• VAT arrears can be included in an IVA. However, they must be repaid in full during the arrangement. This will need careful consideration if the the amount you owe is large.

• Where you are self-employed, you are responsible for meeting your ongoing tax obligations while in your IVA. You will need to forecast and save to ensure you can pay future tax bills when they fall due. If you are an employee, you continue to pay your tax as normal during your IVA through payroll deductions.

• If you receive a tax rebate during your IVA, it will usually be treated as a windfall. As such, you will have to pay it into your Arrangement over and above your normal monthly payments.

Use this guide to find out all the information you need about writing off tax debt with an IVA and whether this debt management solution is the right one for you. Call on 0800 180 8013 for further advice.

Includes our case study about Martin who used an IVA to manage over £100,000 of debt, including HMRC arrears built up while in business as a self employed car mechanic. Choosing the Arrangement over bankruptcy has meant he has been able to protect valuable assets and establish affordable payments.

Contents

Can you include tax owed to HMRC in an IVA?

Yes. Tax debt that you owe to HMRC can be included in an IVA.

One of the advantages of this solution over an informal debt management plan is that you can (and should) include any money you owe to HMRC.

HMRC will be inclined to accept an IVA because it is a formal, legally binding agreement. As such it allows you to repay as much of your debt as you can over a fixed period (normally 5-6 years).

You can try and negotiate a payment plan with them yourself. However, they will normally require the money you owe to be paid back within 2 years.

For most people the monthly payment required to repay HMRC in 2 years would be impossible to sustain. As such, an IVA offers a far better solution. For further advice on this, contact one of our experts today:

Are self assessment arrears written off in an IVA?

An IVA will help you write off self assessment tax arrears.

Problems with this type of debt often happen when you are self employed.

You may have tried to put a repayment plan in place directly with HMRC yourself. However, while you attempt to keep up with this, you don’t have sufficient funds to save for next year’s bill.

The result is a vicious circle of debt with no end in sight. Using an IVA will break this cycle.

An IVA will allow you to draw a line under your self assessment tax arrears once and for all.

Once your IVA is finished, any outstanding self assessment debt is written off. The treatment of this debt is the same as any others in the Arrangement.  To find out more about this, give us a call on 0800 180 8013.

What happens to VAT debts in an IVA?

As with self assessment tax debt, VAT arrears can also be included in an IVA.

However, there is a catch. VAT debt is preferential. Because of this, it has to be paid back in full during the course of the Arrangement – i.e. within 5-6 years. This rule also applies to other types of tax debt including PAYE and CIS arrears.

If your VAT arrears are large, the monthly payment into your IVA to repay them may not be affordable.

Where you owe VAT, the payments during the course of your IVA must be sufficient to cover all of the following:

• 100% of your VAT bill
• The fees charged by your IVA Company
• A return to any other debts included.

Where the payments you would need to make to achieve this are unaffordable, you may need to consider a different debt solution such as going bankrupt.

If you are VAT registered, you can continue running your business while your IVA is in place. That said, HMRC might decide to issue you with a new VAT number.

Tax debt in an IVA Case Study – Martin’s story

With our assistance, Martin started an IVA in January 2026. His total debt was over £100,000 including approximately £7000 owed to HMRC in self assessment tax and VAT arrears.

Martin was a self employed car mechanic. He had been running his business for a number of years. However, after an unafordable rent increase, he had to stop trading.

After closing his business, he found fulltime employment in a local garage. However, he was left with debts owed to suppliers of his old business, personal loans, credit cards and tax to HMRC.

Martin considered the option of going bankrupt. However, this could have put some of his valuable work tools at risk. He therefore decided an IVA was the better solution.

His IVA was accepted based on affordable payments of £300/mth. With his debts managed, he can now focus on his family and job.

How do you pay ongoing tax if you are in an IVA?

Where you work on a PAYE basis, you don’t need to worry about getting a tax bill while you are in an IVA.

Your employer will deduct all necessary tax and National Insurance contributions directly from your wages as normal. These payments are nothing to do with your IVA.

The situation is different if you work for yourself.

In these circumstances, before you start an IVA you will need to produce a business income, expenses and drawings forecast.

This forecast will show the average amount per month you should be saving aside for tax.

Once your IVA is in place it is very important that you save an appropriate amount each month to pay your future tax bills. If you don’t, you could get into trouble with tax debt again during the Arrangement which could put the whole solution at risk.

Are you working for yourself and struggling with tax debt? Give us a call. One of our experts will advise you on whether an IVA is right for you and help you do a business forecast.

What if you get a tax rebate during an IVA?

If you have paid too much tax, HMRC will often repay this to you as a cash lump sum known as a tax rebate.

You are not likely to get a rebate if you work as an employee. It happens more often if you are self employed. In particular if you work in the construction industry on the HMRC CIS scheme.

If you receive a rebate once your IVA is in place, it is likely to be a windfall. This means that it will have to be paid into your Arrangement.

The fact that you give your tax rebate to your IVA Company does not mean the agreement will finish any faster. You still have to pay the remaining monthly payments. It simply means you pay more of the money you owe back. To receive further advice or ask us any questions about this topic, please fill out a contact form online or give us a call on 0800 180 8013.