IPA Question

debtinfo

Hi Wurzella and Maybeelady, Self emploted tax is a bit different and section 77 of the Technical Manual is definitally worth a read (let me know if you dont know where this is) although it is a bit dry.

The NTIPA will only apply to PAYE earners. If you are self employed Technically you wont have to pay any tax until you have a change in the source of your income. However again technically this happens on the day of your bankruptcy as you do not carry on in self employment but stop one business and restart the next day.

This means any tax owing up to the bankruptcy date is a debt in the bankruptcy. You then start from Zero again on a shortened tax year

wurzella

So, we'll still be owing the tax money to HMRC. not to the OR? Therefore I'll still have to do a tax return for this year? Not what I expected at all. Directions to that manual would be appreciated, I'll see if I can understand anything :rotfl:

debtinfo

okay go to the insolvency service website
Click on Freedom of information on the right hand side
Click on 4) how we make decisions
Click on third from bottom Technical manual
Chapter 31 Realisation of assets then IPAs
or Chapter 77 Direct taxation then self assesment

This is the guidance given to the examiner that will assess your case. As with everything interpretation can be a different thing

wurzella

This seems to be the relevant paragraph from the technical manual. I could be wrong but I read this as saying that self assessment cases are dealt with in the same way. What does every else make of it?

77.35 Taxation in the year a bankruptcy order is made HMRC bases its claim on the tax due for the whole year in which a bankruptcy order is made, in addition to any arrears, but only in cases where there has not been a change of source of income to the taxpayer. The bankrupt is liable to tax on his/her assessable income and profits from the end of the tax year in which the bankruptcy order was made unless there has been a change in the bankrupt’s source of income.
‘Source’ is an expression used by HMRC to indicate from where a taxpayer has obtained or is obtaining taxable income. For example, if a taxpayer was engaged as a window cleaner for the whole of the tax year in which the bankruptcy order was made against him, there would not be a change of source which would affect the basis of the bankrupt’s liability to tax. But if, after the bankruptcy order and in the same tax year, the bankrupt were to obtain (alternative) work as a carpet cleaner or were to take direct employment (and thus become subject to the collection of income tax under the PAYE scheme), either of these events would be a change of source which would cause HMRC to hold the taxpayer (personally) liable for the tax arising from this income in the period from the date of the bankruptcy order or the date of the change, whichever is the later, until the end of the tax year. The tax arising for this period would not be a provable debt in the bankruptcy but would constitute a post bankruptcy debt for collection by HMRC in the usual way.

wurzella

Thanks a lot for that debtinfo, I've bookmarked that now :rolleyes:

Maybeelady

The tax side of things is REALLY confusing. I'm due to make a payment on account at the end of this month, which I don't have, not to mention I should have been putting money aside from April - now for the current tax year which i haven't been doing becasue I just don't have it. So I'm not sure what is included in the BR and what isn't.

Can tax arrears (the tax I should be putting aside for the 09-10 tax year) be included in your neccessary expenses. or am I going to end up in debt with the HMRC after my BR?

wurzella

From what I understand HMRC will write off this year (until April 2010) unless you change job, then they'll want to start afresh.

IF HMRC aren't taking any money off you the OR will take that portion of your income on an IPA until April 2010. If HMRC are claiming the money off you then it will be taken off your income before the OR calculates your surplus. You're not going to have to pay it twice, don't worry

I'm just waiting for debtinfo or someone else who knows what they're talking about, to come back and clarify who we'll be giving the money to. He seemed to say that officially we change employment on the day of bankruptcy but that's not what I understand from the excerpt below, we'll see.

I think it's best for us if it goes to the OR as you may have a delay in setting up the payment order and the general consensus seems to be that they don't back date it, I'd like a couple of months tax free :T

debtinfo

Hi back again. The way it should work is that if you are a sole trader is that you cease trading on the day of the bankruptcy order. That is the old business and any HMRC debts relating to that business are incuded in the bankruptcy order and should be put on the SOA. If you intend for this to still be the source of your income then you inform HMRC that you are starting a new business and you should do your tax the normal way for the new business. Your income in terms of the IPA is Net and should be given after normal business expenses including tax have been deducted. If this cannot reasonably be deduced (i.e if the work changes alot) then the OR may insome cases delay the IPA and ash for you to record your income for 3 months to wirk out your income

debtinfo

To be absolutely sure you could ring the tax office and get them to put in writing how you should work your tax out

wurzella

But in the excerpt I posted above from the manual it talks about HMRC basing their claim on the entire tax year and only changing that if there is a change of source. And that came from the chapter dealing with self assessment. Is that just a bit of a slip up in the manual?