Tax code and owing Income Tax when declaring BR

mighty_reds

I am declaring BR on 18 May.

As of January 2009 I owed Inland Revenue £1200 in Income Tax (tax returns from self-employed work I no longer do). As this was long before I considered BR and I had no way of paying this amount I asked Inland Revnue them to take the money out of my 2009/10 PAYE which they agreed and my tax-code for 2009/10 was changed to 29L (basically virtually all my PAYE earnings were subject to basic rate tax) and this reduced my Net income by about £100 a month (which figures, considering I owed them £1200).

Anyway, I almost forgot out about this as I prepare my SOA and associated stuff for BR

Questions

1. Do i list the £1200 (or what would now be about £1000) as a debt on my SOA as i guess technically because I owe Inland Revenue it's a debt?

2. If so, this debt will then cease to exist, so will my Net income go up post BR as a result of a changed tax code?

Does this make sense? if not please ask more questions and I will try and answer!

Thanks

StuntmanBob

mighty_reds wrote: »

1. Do i list the £1200 (or what would now be about £1000) as a debt on my SOA as i guess technically because I owe Inland Revenue it's a debt?

2. If so, this debt will then cease to exist, so will my Net income go up post BR as a result of a changed tax code?

1. Yes, list it - I owed HMRC a fortune, and it's now gone.

2. EDIT: removed incorrect advice

mighty_reds

I'm still a bit confused about this.

Basically whatever Tax I am paying now, does it stay the same, but comes to me then I send it to the OR once I am declared BR?

Like I said before my tax code for the year is 29L so I pay quite a lot of Income Tax, I am just trying to work out if my Net take-home will be the same post BR and pre BR (when I mean Net, I mean the money I get after deductions, be it Tax deductions or OR deductions)

Thanks

debt_doctor

Hi,

You need to put this debt on your BR petition and indicate in the notes section at the back that the IR are taking their debt from your tax code.

Your OR will stop this happening once you are BR as the IR no longer have any preferential status.

You should then receive a nil tax code which means you will receive your gross earnings in your pay packet / bank account and need to save your normal tax amount to give to the IS agents, Moon Beaver.

DD

mighty_reds

debt_doctor wrote: »

Hi,

You need to put this debt on your BR petition and indicate in the notes section at the back that the IR are taking their debt from your tax code.

Your OR will stop this happening once you are BR as the IR no longer have any preferential status.

You should then receive a nil tax code which means you will receive your gross earnings in your pay packet / bank account and need to save your normal tax amount to give to the IS agents, Moon Beaver.

DD

Thanks, and with regards "normal tax amount" I guess that will be the normal amount for a single adult (I think it's currently 20% Income Tax on all earnings over £6,475 per year or £539.58 each month).

Does anyone know if NI contributions are still taken out of my salary post BR?

Thanks

StuntmanBob

StuntmanBob wrote: »

2. I believe that you'll get a NIL tax code post bankruptcy for the remainder of the financial year in which you go BR - so in fact your income will go down. However others are more knowledgeable about this and I'm sure will answer definitively. (This didn't happen to me as I went BR just before the start of the new tax year this year).

My reply above is wrong - I got confused between a NIL tax code and a ZERO tax code. As far as I can tell (and I've searched around so that I don't give another wrong answer) it works like this:

Your tax code is changed to "NT" so that no income tax is deducted from your pay-packet. I believe that National Insurance is still deducted is the normal way.

So essentially you will be paid your gross pay (exactly as DD said). You must then pay to the OR (or in fact a company called Moon Beaver who act for the OR) the amount of tax that would normally be payable on that pay.

Example: Normally you pay £500 a month in income tax. You get the NT tax code, your "take home" (net) goes up by £500 but in turn you pay the £500 to Moon Beaver.

Specifically in answer to mightyreds, I think your income may in fact go up because you'll be paying Moon Beaver the amount of tax that would be due if your tax code was normal (647L). If my calculations are correct (and they may not be!) I think you'll be £102 per month better off.

mighty_reds

StuntmanBob wrote: »

My reply above is wrong - I got confused between a NIL tax code and a ZERO tax code. As far as I can tell (and I've searched around so that I don't give another wrong answer) it works like this:

Your tax code is changed to "NT" so that no income tax is deducted from your pay-packet. I believe that National Insurance is still deducted is the normal way.

So essentially you will be paid your gross pay (exactly as DD said). You must then pay to the OR (or in fact a company called Moon Beaver who act for the OR) the amount of tax that would normally be payable on that pay.

Example: Normally you pay £500 a month in income tax. You get the NT tax code, your "take home" (net) goes up by £500 but in turn you pay the £500 to Moon Beaver.

Specifically in answer to mightyreds, I think your income may in fact go up because you'll be paying Moon Beaver the amount of tax that would be due if your tax code was normal (647L). If my calculations are correct (and they may not be!) I think you'll be £102 per month better off.

Very helpful, thanks a lot. Dont worry any so called "wrong" answer's, we are all learning this game as we go!!!! Thanks for taking the time to look around for this information on my behalf and replying.

StuntmanBob

mighty_reds wrote: »

Very helpful, thanks a lot. Dont worry any so called "wrong" answer's, we are all learning this game as we go!!!! Thanks for taking the time to look around for this information on my behalf and replying.

You're welcome - knowledge is power! I couldn't have got to where I am now without the excellent advice from the folks on this board. I'm just trying to pay it forward.