Bancrupt and still paying TAX ?

StuieUK34

Hi,

My partner went BR back in July... She works 30 hours per week and gets that working tax credit.... She has no disposable income, so theres no IPA...

We both read in the notes that when you become BR, you dont pay any tax for 1 year of being BR...
Well, she is still paying tax at the moment, can anyone shed any light on how it works ?
IE:
Does she pay tax as normal, but then HMRC pay the OR ?
She has tax code 609L (single mother 2 kids) , should she have a code that says exempt? etc ?

Or does she just pay tax as per the rest of us ?
cheers
Stuie

alastairq

Hi...the way it works is as follows...

The BR's income tax for that year goes effectively into the BR. [there is a sticky explaining the ins and outs of this]

At some point within 3-5 months [HMRC can be slow]....OH will find her tax code reverts to NT [Nil Tax]...

Once her tax code changes, she needs to save the amount she would normally pay in tax...and notify the OR [or rather , Moonbeever, the OR's agents]....by forwarding her first [and subsequent,if different] payslips.

She will receive notification of the amount [IPA] she has to pay Moonbeever each month....[which should equate to the same amount of tax normally paid]....

She will then pay this to Moonbeever, until her new tax code is issued [at/near the start of new tax year]....

If her pay varies up or down [e.g. overtime, sickness, etc]....then that pay slip must be sent to Moonbeever, who will re-calculate the new amount to be paid that month.

Negotiate with Moonbeever regarding a convenient pay date for you.......and they don't get agitated for a few weeks anyway.

I suggest, if pay is fairly steady, setting up a standing order for the amount.....



You may notice, some BR's don't get a NT code [or associated IPA]...this is largely due to the length of time it takes for HMRC to set up the NT code, so if BR is close to tax year end, then it isn't worth the effort setting up the NT code......so they don't bother.


The sums collected by this method don't go to pay HMRC.....they go towards the administrative costs of the BR first [and usually get swallowed up by these.]

Effectively, the tax man must go fiddle......

pauleenbruce

when i saw the or she said that they would not be applying a NT as i work part time so there is not an amount of tax to be worth bothering about

JCS1

pauleenbruce wrote: »

when i saw the or she said that they would not be applying a NT as i work part time so there is not an amount of tax to be worth bothering about

Needs to be £50+, or not worth the admin costs, etc.

StuieUK34

she went BK in July...
changed to a new job in August (practically the same pay as previous job)
her payslip said tax code 609L , and tax amount per month is £90
And according to the SOA thing, she has £7 per month spare after bills and stuff.... so cant ever see an IPA coming into effect, and the O Receiver had wrote a letter after 2 months staying her investigations are concluded.....

The tax query is because of this:
My partner has received a letter from the HMRC saying they have been informed she is bankrupt.. It also notes about her job change. So now the HMRC have advised that the tax code of 609L will now change to 'EMERGENCY Code' (not quite sure what that is, but sounds like Basic Rate tax code???) , and at the end of the tax year, she will be sent a tax return form to see if she is owed or owes any money to the HMRC......

So a little confusing at the mo !

skylight

Her tax code shouldn't have changed because she changed jobs after BR therefore pays nothing this way during the tax year.

Whats worrying though is the emergency code. That means she is likely to be paying more tax than usual. Any tax overpayments etc will go to the OR next tax year. She needs to get onto the tax office ASAP.

StuieUK34

she did, spoke to them this morning, lady said the same as the letter, that she will be on emergency tax code......

As with the tax, i thought you didnt pay tax for the first year, so that amount is included as an income as such, so i thought she would get to keep it ?!

skylight

If you dont pay tax in a BR year then you dont get to keep it, you have to give it to the OR. You have a nil tax code but there are times when you dont, such as its not worth the collection or its to close to the end of the tax year or you change your job in the BR year.

alastairq

Nil tax (NT) coding/IPAs (for reference)

Where bankruptcy occurs, HM Revenue and Customs (HMRC - formerly Inland Revenue) submits a claim in the bankruptcy proceedings for the whole of the outstanding tax due in that tax year, for both employed and self-employed individuals. The claim submitted in the proceedings by HMRC is dealt with in the same way as any other unsecured creditor. As a consequence of HMRC submitting this claim for outstanding tax in the year of bankruptcy, where the bankrupt is employed on a PAYE basis, HMRC applies a nil or no tax (NT) code to the bankrupt's salary for the remainder of the tax year in which the bankruptcy order was made. The NT code is applied to all income earned by the bankrupt after the bankruptcy order date, either until such time as there is a change in the bankrupt's source of income, or the tax year in which bankruptcy occurs comes to an end, whichever event is the earliest. This means the bankrupt does not pay any tax on his/her income whilst the NT code is in force and is thus in receipt of additional income to that received prior to the application of the NT coding.

If the bankrupt changes income source/employer during the course of the tax year in which he/she is made bankrupt (which could include becoming self - employed having previously been PAYE employed), HMRC deems this to be a change in source of income, and a new tax code will be issued. The bankrupt will be required to pay tax on his/her earnings from the date of the change. For further information regarding what is meant by a change of income source refer to Chapter 77, Direct Taxation, paragraph 77.23, Nil tax codes and Chapter 77, Direct Taxation, paragraph 77.35,Taxation in the year a bankruptcy order is made. The bankrupt also becomes liable for tax again on any income received from the start of the tax year following the year in which bankruptcy occurs.

Change jobs during the BR year, and tax reverts to normal..effectively

script

I'm planning B/R.

And just so I understand what happens with the tax.

You only have to start paying it when you get a Nil Tax code (or save it when you get a Nil Tax code until Moon Beever gets in touch)?

If you change your job during B/R even if you are paying the same tax - your Nil Tax code stops - and you stop paying Moon Beever?

And if you overpay on your Tax, during your B/R any refund must go to the OR?

Have I got this right?

Thanks so much.

alastairq

script wrote: »

I'm planning B/R.

And just so I understand what happens with the tax.

You only have to start paying it when you get a Nil Tax code (or save it when you get a Nil Tax code until Moon Beever gets in touch)?

If you change your job during B/R even if you are paying the same tax - your Nil Tax code stops - and you stop paying Moon Beever?

And if you overpay on your Tax, during your B/R any refund must go to the OR?

Have I got this right?

Thanks so much.

much will depend on the time one declares BR.

If BR commenced with but a short while to the end of the tax year, then...given the time it takes HMRC to set up the NT code, it wont be worth it.

Really, there is no issue with the NT code.....once/if it occurs, then forward the payslip to Moonbeever, laying aside the amount you think you normally pay in tax. [Moonbeever will explain this in their letter to you]...

Once the moonbeevers have worked out what the NT IPA payment is, they'll tell you, and you commence paying to them....

With NT, and the NT IPA.. no-one will lose out..honest....[except the taxman]...if no NT code is forthcoming [for time reasons], then PAYE tax continues as normal.