Bankruptcy and NT (Nil) Tax Code

JCS1

DarkConvict wrote: »

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? Surplus IPA's start at 50% and go up to 70%.

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. It's the same form for a Nil Tax Code IPA and also a surplus IPA. For someone working differing hours, either an average is used or copy payslips given

And a bit of a side question is, why is this years tax included in the bankruptcy? Otherwise would be preferential treatment of a creditor
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. Not always, don't forget your tax code is set by HMRC who can adjust up or down from the 'normal' depending on an individual's circumstances.

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.

Hope this helps a bit. I used to explain a NT Tax Code in interviews as HMRC giving you the money in one hand and you pay it over to OR with the other hand.

Little light reading on NT Tax Codes, section 31.7.15:

http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch25-36/Chapter31/part7/part2/part_2.htm

debtinfo

Madmonk wrote: »

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.;)

Hi Mad monk, If you went bankrupt in the last financial year i.e before april. Then the HMRC should have put you back on a normal tax code in april, if they have not then you will owe them the money when they realise

DarkConvict

debtinfo wrote: »

Hi Mad monk, If you went bankrupt in the last financial year i.e before april. Then the HMRC should have put you back on a normal tax code in april, if they have not then you will owe them the money when they realise

Very true, and don't let them fob you off with something like a 46T tax code. Get a proper tax code unless you want an unexpected tax bill.

alastairq

DarkConvict wrote: »

With regards to alastairq

Are you saying that a IPA is created just for the tax. In effect, that is what happens.The Taxman is treated like any other creditor. Given that the BR now has an increased income, the OR set's up an IPA to recieve the surplus, [subject to the percentages rules]...If one's SOA left little or no surplus, then the OR's IPA will be for what would have been paid in tax..co-incidental...and could even be less, if one's SOA was greater than one's net income prior to BR. This [NT] IPA runs only for the tax year, [or less if a job change occurs] in recognition of the fact that, for the next tax year, the BR recieves a new tax code, so has a reduction in net income. The three year IPA is a percentage of any surplus income, over and above that gained by the NT. 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? More or less....since one's surplus income under BR will be reduced once the new tax year starts, and one recieves one's new tax code for PAYE

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. NO. Under the rules of bankruptcy, the taxman is a creditor, therefore is simply not entitled to receive PAYE payments from the BR's wages. The BR is not entitled to those wages either, but is granted an allowance to live on, by teh OR [One's SOA and ''allowed'' surplus]
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. TAx is a bill, sent to someone who has earned money. If self-employed, one files one's tax return at year-end, and receives a bill for that year past, from HMRC. PAYE, as you say, is payment by stages, based upon one's tax status. Whilst BR, taxman isn't entitled to payment of money, any more than credit card company...

ONe's tax code is issued dependant upon various factors, and can alter willy-nilly.....NI doesn't alter, except is based on gross income...so is retained.....In BR, all are treated with equality.[ exccept apparently in Brighton??}

DarkConvict

Its all starting to slot into place with all these posts, still it sounds simpler than it really is But i like to know the details. Thank you! :beer:

Madmonk

Hi debtinfo,
I had a nil tax code for jan,feb,mar last year then went back onto a normal taxcode in April. I should get AD in 3 weeks, I've had a letter from the or showing a statement of how much they had managed to collect to pay debts this include my tax that they collected from the taxman but they have never got in touch about the 3months of tax that I have (which I assume belongs really to the or) but if I'm discharged will they bother to ask for it? Thats the million dollar (or £600 in my case) question.

debtinfo

Hi this is an excerpt from the technical manual and fits your case mad monk.

With NT IPOs, there was a time problem in that where the bankruptcy order was made after the end of November of the tax year in question, it could be difficult to obtain the court order for the IPO quickly enough to merit such a course of action but this need not be the case with an IPA. When deciding whether an IPA is appropriate in order to collect surplus income arising as a result of the application of the NT coding, consideration should be given to the amount of tax the bankrupt pays each month and the time the local tax office is likely to take to implement the NT coding.
In practice, it can take some time to implement the NT code and the bankrupt will then receive the overpayment of tax as a refund at the end of the tax year. Where such a tax refund arises due to delays in adjusting the bankrupt's tax code, it should be claimed by using the bankrupt’s duly completed authority TNIDIS which authorises the payment to the official receiver/trustee of income tax refunds payable for any year up to and including the tax year in which the bankruptcy order was made. The tax refund must not be claimed as after-acquired property.

Madmonk

Sorry to seem dim but will the or or the IR eventually ask for the £600 or not? I'm assuming that the money technically belongs to the or and should go into the pot to pay off my debts but if i'm automatically discharged in 3 weeks will they ask for it (especially since they have already applied to finish my file}?:cool:

DarkConvict

Madmonk wrote: »

Sorry to seem dim but will the or or the IR eventually ask for the £600 or not? I'm assuming that the money technically belongs to the or and should go into the pot to pay off my debts but if i'm automatically discharged in 3 weeks will they ask for it (especially since they have already applied to finish my file}?:cool:

If you are worried, you could ask them if your 'account' is all upto date, could call it a end of bankruptcy checkup i guess when you ring, just to check how things are going.

t666

I hope ppl don't mind me dredging up this older thread: however I have read all this and still very confused.com.
I am probably going bankrupt on the 5th March. How will this tax business effect me?
I am very worried of having to store money which isnt mine... I have a limited understanding of how the tax biz works...any ideas?