Tax in year of bankruptcy

Tax in year of bankruptcy

Didn't find your answer?

A client was made bankrupt early in the 2009-10 tax year.  Subsequent to that event, but in the tax year 2009-10, he started a new sole trade as a subcontractor in the construction industry.  Tax was deducted at source under the CIS scheme, leading to an overpayment of tax for 2009-10.  A 2009-10 self assessment tax return was duly filed, under a new UTR, showing an overpayment of about £800 tax all of which was deducted at source under CIS after the bankruptcy notice but during the same tax year as that notice.

HMRC insist that they are entitled to use that overpayment to settle amounts due to HMRC that arose prior to the bankruptcy notice, and in this case it was entirely used to pay arrears of class 2 NIC.

Is this right?

If it is not right, by what procedure should this be challenged?

Thanks

With kind regards

Clint Westwood

Replies (1)

Please login or register to join the discussion.

By Marion Hayes
16th Dec 2011 16:39

Year of bankruptcy

HMRC can, practically speaking, only have one UTR during the year of bankruptcy and where s/e started prior to the event all of the year's income and allowances are claimed in the pre-bankruptcy reference. The new reference is used from then onwards. Whether this is legally correct is another matter I am not sure on as my only experience has been with liabilities as opposed to refunds.

In your case the refund belongs to the return relating to the receiver. I am not sure that they are entitled to set the refund off against their other debts - I think you need to refer to the receiver and get the refund amount rightly post bankruptcy to be taken into account as part payment of any funds your client should be providing towards settling his debts.

I would say that Taxaid would be the people to check with. 

Thanks (0)