I understand that a bankrupt is not liable to personal tax throughout the 12 month period of his bankruptcy by way of some sort of concession or allowance.
How is this done? Is it effected through tax codes and only applicable to Sch E?
I cant find the answer anywhere so if anyone could advise me, I would be most grateful.
Anonymouse
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Just search for Bankruptcy.
The search facility is pretty poor, but it does get you there.
SA manual http://www.hmrc.gov.uk/manuals/sam/samrec/samrec06100.htm
Insolvency Manual
http://www.hmrc.gov.uk/manuals/insmanual/INS1000.htm
Haggis...
...can you point me and the original poster to any information on the HMRC website (or anywhere else for that matter) that makes it clear how to complete tax returns for bankrupts please? There seems to be a complete lack of information out there...and with all the quirks that different clients have, it would be nice to have some HMRC guidance that covers all eventualities. Or am I being naive assuming that something like this exists?
Thanks,
Alfie
Don't get comfortable
Geoff:
There is a tax liability. Code NT stops it being collected through PAYE. It is a debt of the bankruptcy and will be paid or discharged along with other debts. A tax return is needed to establish the debt.
If there is a new job or trade that starts after the bankruptcy but before the end of the tax year; that is a new debt that arises after the bankruptcy and is payable in the normal way. In those circumstances a new self assessment record is set up to deal with the post bankruptcy income (because anything outstanding in the current record is a debt of the bankruptcy).
Please don't ask about those who become bankrupt in the period between 6 April and the date the Finance Act receives Royal Assent (Income Tax for a year cannot be due before it becomes Law).
Still not 100%
So, he is liable to income tax during his bankruptcy however this wont be collected via PAYE, and this is only during the period between the date of banktupcy order and the next 5 April?
Bit of a bummer if you were made bankrupt in March!
So does he have to declare his income on the SA100 and pay it that way? No concessions for the self employed?
More bankruptcy puzzles
I'm OK with the concept that there is no tax liability for the year of bankruptcy, but where do things lie with regard to the Tax Return. Is there an obligation to submit a Return and if so, how is this enforced? It doesn't really matter what figures go on there since there can be no consequential liability?
PAYE, but not for 12 months.
PAYE is a method of collecting income tax that is due. Post bankruptcy HMRC cannot collect tax under PAYE as it would be unfair to other creditors for the tax debt to be collected "at source" whereas other creditors had no such mechanism. Tax code NT is operated from the date of bankruptcy to the end of the tax year, or until he changes jobs.
A normal code applies from the date he changes jobs, or from the start of the following year, because these are different debts arising after he was made bankrupt.