Bankruptcy and NT (Nil) Tax Code

alastairq

NT tax code really isn't a hassle.....and may be an opportunity to 'make money'' in the form of interest accrued whist the administrative system grinds on?

.....and BR's don't 'owe' HMRC any tax for the year of BR, if on a NT code....this much we have decided on?

Where more confusion may lie is in the instance of a BR, employed/paid by another....who receives an NT code, and the IPA to reflect this......and who then changes job!

At that point, the BR recieves a new tax code, and commences paying tax!

Hopefully the IPA would be worded to reflect a reduction/cancellation of IPA payments.

I get the feeling that to change the NT proceedure[which aligns ex-PAYE with self-employed, self-assessed folk].....would actually involve an earth-moving change in the BAnkruptcy laws.

It is perhaps a pity that IPA's/IPO's imposed on excess surplus income, which I realise thud on for three years.....cannot be deducted at source, pre-tax?

JCS1

IPA's can be deducted at source - if the person doens't pay OR will go to court for an attachment of earnings.

If that was done on a regular basis, the problem would be that the employer would know what the payments were for.

And they couldn't be deducted pre-tax, as that would involve changing the tax rules - only pensions are classed as pre-tax deductions.

debtinfo

just thought i would throw a spanner in the wirks since this is a discusion. Because the HMRC prove in the bankruptcy for the tax what the OR collects is not the tax its self but the surplus created by not paying the tax, then in theory (although never actually seen it happens) the Bankrupt if they have a large deficiency each month could claim hardship and state that the extra income does not create a surplus and is needed for their essential outgoings. It is in the rules but no one ever does it, maybe because no one understands it to ask

alastairq

then in theory (although never actually seen it happens) the Bankrupt if they have a large deficiency each month could claim hardship and state that the extra income does not create a surplus and is needed for their essential outgoings

NOW we are getting onto the topic trolls might love so much......that of massaging the SOA?

I suppose if the circumstances of a BR were to change co-incidentally with BR, whereby the BR's ''income'' would suddenly not be enough to meet basic outgoings...[family catastrophe??] then there is provision in the rules.

''Living beyond means'' may well attract close OR-type scrutiny?

nervousmother

debtinfo wrote: »

just thought i would throw a spanner in the wirks since this is a discusion. Because the HMRC prove in the bankruptcy for the tax what the OR collects is not the tax its self but the surplus created by not paying the tax, then in theory (although never actually seen it happens) the Bankrupt if they have a large deficiency each month could claim hardship and state that the extra income does not create a surplus and is needed for their essential outgoings. It is in the rules but no one ever does it, maybe because no one understands it to ask

And I do recall one case where the council said the person was getting more income (appeared on wage slips) due to the NT tax code then reducing the amount of HB paid. This lady then had a fight on her hands to proove it was not extra income..
If it was classed as extra income all means tested benefits would suffer, tax credits and HB.
Opening a can of worms to fight that battle :rolleyes:

To add: not hard to live beyond your means if your on JSA

DarkConvict

alastairq wrote: »

.....and BR's don't 'owe' HMRC any tax for the year of BR, if on a NT code....this much we have decided on?

From what i can work out, they do owe tax from the date of the BR to the end of the financial year. Of which it is collected by the OR by some means (either BR pays DD to OR system Moonbeever, OR takes it before been paid to employee, or employee pays in one lump sum at the end of the year)

But i think this topic has stretched outside of my legal knowledge.

From what i can tell now the topic is edging to a discussion on if the BR gets their wages without pax paid, is this additional sum which is for the government, no considered additional income. None the less i think it would be, but then you have the additional cost in a SOA of tax expenses.

DarkConvict

I happened to be speaking to a solicitor today about a different issue. And just happened to mention the NT tax code and he agrees. He has seen numerous people get in a mess with it, because they are unaware they should pay the OR monthly or at the end of the tax year, all the tax that would normally be due.

alastairq

there is perhaps some confusion over terminology here, with regards to the use of the word 'tax', and 'owed?'

What might cause confusion, is the fact that, once one has recieved the NT code [which effectively tells an employer that the employee, who pays PAYE, is having zero tax levied.....ie the employee does not ''owe HMRC tax''...HMRC have said so with the NT code.]....the OR [or agents thereof] then places an IPA into force...which in most cases is the same amount, give or take, as that which would be levied in tax, had the BR not taken place.

[A self-employed BR person is in a similar position, but the IPA may be paid on a different basis.......the NT code simply removes discrimination against a PAYE person.]

This is because HMRC is included in the Bankrutcy Order.....much like any other creditor. [they are not exempted, like some other agencies, ie student loans]

The moneys collected from IPA's firstly goes towards off-setting the OR's administrative costs..[I think, around £1500 or so?]....then the balance may be used for distribution amongst creditors...I think I have that right?

Providing one has met the lawfully agreed terms of the IPA, HMRC have no further claim, unless...one changes job during the term of the IPA, in which case a new tax code is issued......

He has seen numerous people get in a mess with it, because they are unaware they should pay the OR monthly or at the end of the tax year, all the tax that would normally be due.

The issue is, non-payment of IPA [which will be pursued....but not by HMRC]

The use of the word 'tax' is misleading the discussion.


My IPA [on NT] ends next April...I will not 'owe' the HMRC a bean for this year's wages...because although I've earned them, the OR 'owns' them.....in fact, HMRC have been 'over-paid' since my BR, so will have to refund the amounts from start of my BR to the imposition of my NT code!

This neatly avoids HMRC being 'accused' of benefiting to the detriment of my other creditors.

HMRC are no more entitled to demand, subsequently, what may be considered 'unpaid tax' for the duration of the BR, than a credit card company would, if trying to claim for moneys lost due to the BR.

[Subject to the rules mentioned above]


If by chance, HMRC DO recieve moneys from my bankruptcy, like the other creditors, then they will consider that a small mercy.



Are you suggesting , by chance, that HMRC may well issue a code for the new tax year, which attempts to recover moneys they lost during the BR tax year?

I have not found anything within the BR documentation which suggests HMRC may try doing that.

Madmonk

Hi everyone - I'm still sitting on the naughty step and I still have my £600 (nil tax code)that no one has asked for yet! I have 3 weeks til AD and it's down to HMRC or my or to ask for the tax! Yes I know some people expect HMRC will come asking for it but they haven't so far. I've been on a normal tax-code since April and HMRC have sent the or tax for the rest of the year but I've heard nothing from anyone about the £600 I have so fingers crossed.;)

DarkConvict

With regards to alastairq

Are you saying that a IPA is created just for the tax. I ask this for two reasons.

1. You may have an IPA already taking 60% of the surplus income for 3 years, so this is definitely separate right?

2. If a separate IPA is done for the tax, how is this done, because some peoples wages differ on a weekly basis based on how many hours they do, and any overtime as well.

And a bit of a side question is, why is this years tax included in the bankruptcy?
I ask this because obviously you are taxed when you earn money, so any wages paid after a bankruptcy should have tax paid on them.
You don't owe a year's tax come April, it is merely predicted. You owe it and via PAYE pay it off at the same time you earn the money. It to me, doesn't make sense that any tax due after a bankruptcy could possibility be included in it.