Self Employed - After BR - Filing Taxes?

CamG_2

I understand that if you are in regular employment you don't pay tax, this goes to the OR.

If you are self employed I understand that you still file taxes at the end of the year.

I'm assuming that the tax bill you pay then goes to the OR?

If this is the case then can a person earn more than they have been told they can to take account of the tax they will be paying at the end of the year?

Eg, my OH has been told he can earn just over 900GBP a month. But he's self employed and so files his own taxes. If the 900GBP is an after tax amount then he should be allowed to earn a little more than that shouldn't he, so that he can pay the tax bill at the end of the year.

Thanks in advance


*Am posting each question in a new thread as they are not related q's, is this ok?*

Richard_S

CamG wrote: »

I understand that if you are in regular employment you don't pay tax, this goes to the OR.

If you are self employed I understand that you still file taxes at the end of the year.

I'm assuming that the tax bill you pay then goes to the OR?

If this is the case then can a person earn more than they have been told they can to take account of the tax they will be paying at the end of the year?

Eg, my OH has been told he can earn just over 900GBP a month. But he's self employed and so files his own taxes. If the 900GBP is an after tax amount then he should be allowed to earn a little more than that shouldn't he, so that he can pay the tax bill at the end of the year.

Thanks in advance


*Am posting each question in a new thread as they are not related q's, is this ok?*

Hey CamG,

I like this "two out of three ain't bad"

When you complete an income & expenditure a/c for the O.R it's based on your net earnings, so yes, your O.H will be allowed to earn more than the £900 per month to allow for paying tax and national insurance. Without doing any calculations that equates to approximately £1150 per month gross earnings. His tax will go the O.R as and when he pays it.

It's always best to start a new thread if it's an unrelated question, but if there's more than one, people will respond to the ones they know the anwer to and leave the others.

Regards

Richard

CamG_2

Hello Again Richard

Thanks again for our response. Glad somebody is on top of things, OH and I seem to be getting bogged down in the detail.

I found this about being self employed (SE) and BR on another forum. It came from the HMRC website. It's very long but if I haven't cut it in case it is useful to someone else in it's entirety. I have, however, highlighted what appears to be the relevant part. Now it seems to be saying that if you are self employed, and you do not change the source of your income, you do not have any tax liability from date of BR until end of tax year. If that is the case then that seems to be unfairly beneficial to my OH, as a SE person, so I'm not sure I'm reading it properly.

PART 4

SELF ASSESSMENT

77.30 The self assessment system

In the UK a self assessment system is in operation for income tax and capital gains tax, and for Class 4 NICs for the self employed (see paragraph 77.41) and student loan repayments (where applicable) for the self employed individual.

HMRC usually send out self assessment tax returns (form SA 100) in April of each year. The taxpayer has the option of asking HMRC to calculate the tax due, but must submit the completed return by 30 September following the end of the tax year, e.g. the return for the tax year ending 05 April 2006 must be submitted by 30 September 2006. The tax return must also be submitted by this date if the taxpayer is an employee who wishes to have an underpayment of tax collected in a later year through PAYE (up to a maximum amount of £2000) instead of paying it as a lump sum by the 31 January filing date. There are automatic penalties for late returns, see also paragraph 77.34.

If the taxpayer is calculating the tax due himself/herself, the return must be submitted by 31 January following the end of the tax year, e.g. the return for the tax year ending 05 April 2006 must be submitted by 31 January 2007.

77.31 The self assessment return

The basic return comprises 10 pages supplemented with additional pages according to the tax payer's circumstances. The additional pages cover employment, share schemes, self employment, partnership, land and property, foreign income, trusts and estates, capital gains and non residence. There is also a shorter tax return for people who, based on the information in their last tax return, have simple tax affairs.

HMRC does not expect either official receivers or insolvency practitioners to participate in the completion of bankrupts’ and discharged bankrupts' self assessment returns. Self assessment returns will be issued to the bankrupt post bankruptcy who must continue to complete his/her own returns: it is not the responsibility of the official receiver to complete such returns

77.32 Payment of tax due

Most of the tax due to HMRC is collected by those paying income to others, i.e. by the PAYE system, by banks/ building societies etc deducting interest from interest payments and under the tax credit system for paying company dividends.

Any other tax remaining to be paid is due as follows. Payments on account are made on 31 January in the tax year and 31 July following, with the balance due or repayable settled on the following 31 January. Payments on account are in effect a form of installment payment, and will normally be equal to half of the net income tax liability, and for the self employed Class 4 national insurance contributions and any student loan payments of the previous tax year.

Payment on account does not need to be made if the amount of income tax etc due to be paid directly to HMRC was less than £500, or if more than 80% of the previous year's tax was covered by PAYE and/or deductions at source. Any tax outstanding in such circumstances will either be collected as a single payment on 31 January, or through the PAYE system by amending an individual’s tax coding.

HMRC will periodically issue statements of account (form SA 300) to tax payers showing how much tax is owing or has been overpaid.

77.33 Records to be kept by taxpayer

The taxpayer must keep all records relevant to their self assessment return for 22 months from the end of the tax year, unless they are in business or let property when the records must be kept for 5 years and 10 months from the end of the tax year. If HMRC has commenced a formal enquiry into a return, the records must be kept until the enquiry is completed even if the other time limits for keeping the records have expired.

Documents and accounting records produced to the official receiver during interview may relate to tax returns previously completed by a bankrupt. It is the view of The Insolvency Service and HMRC that in bankruptcy cases the requirement to preserve records remains with the bankrupt and does not fall on the trustee. To avoid the need for records to be returned to the bankrupt to enable this requirement to be met a procedure has been agreed whereby notification is sent to HMRC by the official receiver when the records are to be destroyed. The records should not be destroyed without HMRC’s written consent unless no reply is received from HMRC within 3 months of sending the standard letter. Where HMRC withhold consent to destroy they will usually want to take possession of the records (to which no objection should be raised by the official receiver.) HMRC have provided an assurance that they will withhold consent only in those cases where it is likely that they will want to inspect the records. Form BPOGD should be sent to the Inspector of Taxes dealing with the insolvent’s affairs. Where details of the relevant Inspector is not known the letter should be sent to the local inspector by reference to the insolvent’s trading address or residential address where the bankrupt has not traded. The same procedure should be followed for the records of companies and partnerships in liquidation.

If the bankrupt requires sight of the records to complete a Self Assessment return, he/she (or his/her representative) should be allowed access to the records. See also Chapter 47 Part 4 - Disclosure of information (including inspection and production of records.)

77.34 Penalties for late filing and/or payment

An automatic penalty of £100 is charged if the self assessment return is not submitted by 01 February (or the filing date agreed if later), plus an additional penalty not exceeding £60 a day if HMRC have received a direction from the Commissioners to charge a daily penalty. HMRC will not apply for the daily penalty unless they believe a substantial amount of tax is owing.

If the daily penalty has not been imposed another £100 is charged if the return is not submitted by 31 July (or 6 months from the filing date if later). There is a further penalty if the return is not made by next 31 January (or one year from the filing date if later) of an amount equal to the tax that would have been payable under the return.

The late return fixed penalties cannot exceed the amount for the year that is outstanding at the return date. If a repayment is due to the tax payer from HMRC then the penalty can not be applied and if paid should be refunded

After the date of the bankruptcy order HMRC will not pursue the levying of any (further) penalties or the notification of any (further) determinations (similar to the estimated assessments) in respect of a bankrupt taxpayer’s affairs. Generally the position in account between the taxpayer and HMRC as at the date of the bankruptcy order will be as shown on the Statement of Account which the official receiver will receive from HMRC. If it is necessary to amend details of the claim HMRC will notify the official receiver separately.

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.

In assessing the amount due for the post change of source period of the tax year, HMRC will apportion the taxpayer’s allowances based on the date the change of source occurred. A change of source may reduce the level of HMRC's claim in the bankruptcy as it will only cover part of the tax year as opposed to the full tax year. A change of source might also lead to the taxpayer being given a new record on HMRC's computer system at an earlier time which will reduce the possibility that documents will be sent to the official receiver in error.

As a change of source will lead to the collection of tax, the bankrupt’s NT code (see paragraph 77.23) will come to an end at an earlier time which will, in turn, affect the level at which an income payments agreement or income payments order might be obtained.

77.36 Completion of returns after bankruptcy order

Self assessment returns will be issued to the bankrupt post bankruptcy and the bankrupt must continue to complete his own returns. It is not the responsibility of the official receiver to do this.

At the date of the order, self assessment returns which relate to the period before the bankruptcy may be due/ outstanding. Similarly, a return may become outstanding which relates to periods both before and after the bankruptcy order. The bankrupt may be unwilling to submit a return which relates to either of these periods because the information will only be used to formulate a claim in the bankruptcy but it may be beneficial for both the official receiver and HMRC for the bankrupt to complete and submit any such outstanding returns as this will enable HMRC’s claim to be submitted more quickly. Other than by the giving of access to accounting information, official receivers should not become involved in this process.

The statements of account (see paragraph 77.32) issued by HMRC will be sent to the taxpayer in respect of post bankruptcy taxation and one statement of account will be sent to the official receiver to inform of the up to date position as at the date of the bankruptcy order (the pay slip which will automatically accompany the statement should be ignored). Thereafter, statements of account will only be sent to the official receiver on request.

If official receivers receive self assessment returns for completion in respect of the affairs of a bankrupt (in respect of tax years before or after the date of the bankruptcy order) or statements of account other than in the circumstances described above, the documents should be returned to the issuing tax office with a short note stating that they have been sent to the official receiver in error and a request should be made that the tax office consults its internal guidance on the correct procedure.

For the purposes of HMRC’s claim and for Self Assessment, employed bankrupt taxpayers are treated in the same way as self employed bankrupt taxpayers, including as regards changes of source (see paragraph 77.35), but prior to the time of the bankruptcy such individuals might have been outside the Self Assessment regime (as their tax affairs were contained within the PAYE system.) If the employees have not been part of the Self Assessment regime they will be added to the regime from 6 April before the date of the bankruptcy order so that a Self Assessment return can be obtained for the whole of that tax year. In such circumstances, the taxpayer’s allowances might or might not be apportioned and the taxpayer might or might not also receive a new record on the Inland Revenue’s computer system.

Where an individual raises a query with the official receiver about his/her tax status, he/she should be referred to HMRC for an explanation of how his/her tax affairs have been calculated.

CamG_2

Now I'm even more confused. I found this:

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Tax after bankruptcy

As a general rule, the tax due for all tax years up to and including the tax year in which you are made bankrupt will be due from your Trustee - from the money he is able to raise - and not from you personally.

So if you are employed and paying tax under Pay As You Earn (PAYE), you should ask your tax office to put you onto a 'Nil' tax code immediately after the bankruptcy order. You should then be paid without income tax taken off for the remainder of the tax year. If for any reason this does not happen, and some tax is deducted after bankruptcy, this should be refunded to you by HM Revenue and Customs. However, if you move to a different employer, this rule ceases to apply and tax should be deducted on an 'emergency' basis.

If you are self-employed, your duty to pay tax directly to HM Revenue and Customs will no longer apply to the tax year of bankruptcy or any previous year. You start paying tax directly from the following tax year.

One exception to the last rule affects self-employed workers in the construction industry, who have tax taken off their earnings at a flat rate of 18%. This deduction continues after bankruptcy, and the amounts that are deducted between your bankruptcy order and the following 5 April are paid by HM Revenue and Customs to your Trustee.

http://www.taxaid.org.uk/tax_debt.cfm?secnav=10

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Does this mean that PAYE or SE you are not liable for any tax?

But, (from reading this forum and others), that the OR will demand from you the amount of any tax liability.

Therefore, a SE BR will have to complete a tax return for this year. Tax will be assessed but not payable to HMRC. The amount of the assessed liabilty will be immeduately due to the OR?

Don't know what this smilie is for :money: but it looks just like I'm feeling right now!

Richard_S

Hello Again Richard

Thanks again for our response. Glad somebody is on top of things, OH and I seem to be getting bogged down in the detail.

I found this about being self employed (SE) and BR on another forum. It came from the HMRC website. It's very long but if I haven't cut it in case it is useful to someone else in it's entirety. I have, however, highlighted what appears to be the relevant part. Now it seems to be saying that if you are self employed, and you do not change the source of your income, you do not have any tax liability from date of BR until end of tax year. If that is the case then that seems to be unfairly beneficial to my OH, as a SE person, so I'm not sure I'm reading it properly.

Hi CamG,

I'm not an expert or professionally trained in matters of insolvency so if there's something crucial resting on this then you really need to seek professional advice. However, I did train as a Chartered Accountant and the principles are reasonably straightforward and what the legislation that you've quoted means is:

A SE person does not have a tax liability to HMRC because the tax that the bankrupt (Bk) would have paid becomes an asset or income to his/her estate through the O.R. If the Bk changes the nature of his self employment (say from Window Cleaner to Carpet Cleaner, as in the example) during the period of his Bky then the tax treatment reverts to the normal situation, ie it's a liablity to HMRC. If the Bk had an outstanding liablilty to HMRC at the date of his Bky then that debt becomes part of the Bk's estate, and as such is written off, (unless the Bk has assets to satisy creditors)

It's the same if you're a PAYE employee. The job a Bk holds at the point of Bky is subject to an NT Code, but if the Bk changes his job then the NT code ceases to apply and the tax situation reverts to the normal Tax Codes.

I hope I haven't confused you further :rolleyes:

Richard

EDIT: I think I've just answered your subsequent Post too

CamG_2

Richard_S wrote: »

Hi CamG,

I'm not an expert or professionally trained in matters of insolvency so if there's something crucial resting on this then you really need to seek professional advice. However, I did train as a Chartered Accountant and the principles are reasonably straightforward and what the legislation that you've quoted means is:

A SE person does not have a tax liability to HMRC because the tax that the bankrupt (Bk) would have paid becomes an asset or income to his/her estate through the O.R. If the Bk changes the nature of his self employment (say from Window Cleaner to Carpet Cleaner, as in the example) during the period of his Bky then the tax treatment reverts to the normal situation, ie it's a liablity to HMRC. If the Bk had an outstanding liablilty to HMRC at the date of his Bky then that debt becomes part of the Bk's estate, and as such is written off, (unless the Bk has assets to satisy creditors)

It's the same if you're a PAYE employee. The job a Bk holds at the point of Bky is subject to an NT Code, but if the Bk changes his job then the NT code ceases to apply and the tax situation reverts to the normal Tax Codes.

I hope I haven't confused you further :rolleyes:

Richard

EDIT: I think I've just answered your subsequent Post too

Thanks Richard. That makes more sense.

So, he does an SA at the end of the tax year. The amount of tax he would have had to have paid goes to the OR, self employed or not?

Nothing riding on it, except my reputation with my OH. He has no interest in the internet and is in awe of my ability to obtain information. Have to maintain my image

Richard_S

CamG wrote: »

Thanks Richard. That makes more sense.

So, he does an SA at the end of the tax year. The amount of tax he would have had to have paid goes to the OR, self employed or not?

Nothing riding on it, except my reputation with my OH. He has no interest in the internet and is in awe of my ability to obtain information. Have to maintain my image

Hi CamG,

"Spot on". If uses an accountant then he'll need to let them know of his status so that they can "copy" the HMRC on your O.H's involvement with the O.R. If he prepares his own self assessment then no doubt the O.R would want to check the figures to ensure that any tax payable has been accurately calculated.

You must be creating a startling image CamG, all the work you're putting in.

Regards

Richard