Bankrupt in year to 5 April 2011

Bankrupt in year to 5 April 2011

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An existing client became bankrupt in January 2011. Before and after that date he operated a sole trade.

My understanding is that tax liabilities up to the date of becoming bankrupt are wiped out. So we are proposing to prepare accounts for and include on his tax return only the figures for the period from bankruptcy to the end of the tax year. In addition we are planning to only include his pension for that part of the year. We will disclose this in the white space.

2 questions. Will the aproach above be acceptable? Can he have a full personal alowance against the post bankruptcy period?

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By John R
06th Jan 2012 19:24

I have a case where the client (self-employed) submitted his own paper tax return for 2009/10 showing his income from the date of bankruptcy in that year to 5 April. A new UTR was set up but no return was requested under the new reference in 2009/10. The client only included income from the date of the bankruptcy but appears to have been given the full personal allowance. The Revenue manuals indicate however that all income should go on the return for the year of the bankruptcy and that allowances and reliefs should be apportioned fairly with separate calculations being done for the pre- and post-bankruptcy periods.

I understand that the Revenue take a reasonably relaxed view for the year of the bankruptcy even to the extent of not pushing for a return if one is not received, in certain circumstances. Have a look at the Self Assessment Manual at 100601 for further information.

I feel that your approach will be acceptable as long as you state in the white space that only post-bankruptcy income is included. You may need to check whether an online submission will be acceptable as it will be impossible to fairly apportion the allowances unless there is a manual intervention. Perhaps you have information that suggests there was no taxable income in the first part of the year in which case a white space note may result in all allowances being given against the second part of the year.

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By Marion Hayes
06th Jan 2012 21:49

My current research shows....

an individual can only have one return per utr in a year.

HMRC manuals instruct that if a trade began before bankruptcy it is correct to include profits up to that 5th April on the old UTR return and any liability thereon is part of the bankruptcy debts.

If a trade starts after the date of bankruptcy a new UTR is issued and the first period's profits are shown under the new reference with all other income received after the date of bankruptcy. This is a new person for tax purposes so receives a full personalallowance on both returns 

I also have a client in this position and this treatment of the profits has been agreed with the receiver

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