Bankruptcy and NT (Nil) Tax Code

Hi Darkconvict, was your friend on PAYE or was he/she self employed or trading

HMRC, in issuing a NT code, are applying zero tax for the duration of the code.

This actually should run from the day of BR, but administrative delays often lead to a time lag.

Since up to the date of NT being applied , a BR will be paying tax, this then has to be returned at the end of the tax year, by HMRC, as a rebate, since taxes are not exempt from a BR. This is normally returned straight to the OR...but as has been boted on these forums, can sometimes end up as a surprise for the BR.....but apparently should be forwarded to the OR.

Once the NT code is applied, the OR [or the representative/collector, ie Moonbeever]....should impose the IPA, but again, administrative limitations may mean a delay in this happening..[in my own case about 6 weeks before I got my present IPA figure]....in the meantime, the BR is expected to lay aside the money which would 'normally' be paid to HMRC , as it will be collected asap [by Moonbeever]......the OR advised me it was ok, if necessary, to set up a savings account in which to pay the uncollected IPA moneys....thereby allowing the BR to accrue interest...[probably not a lot, but hey, why waste it? Could be a MacDees for the kids??]

One way of explaining hte whole thing perhaps is to remember, whilst one is undischarged bankrupt, one's income isn't one's own.

It actually 'belongs' to the OR, who is responsible for its re-distribution...not just to creditors, but to the BR too.

Confusion may arise from the fact that one's income doesn't physically change hands....but the amounts requested on one's SOA, are in fact, amounts allowed by the OR for the BR to sustain a reasonable standard of living..

Hence, anything above a minimal surplus of income , the OR takes [as an IPA/IPO]....if one's income is actually below the tax threshold, then one doesn't have an IPA imposed....if one recieves a wage, which would normally be subject to tax....then the IPA imposed would reflect the SOA as allowed by the OR, plus the surplus allowed, and the OR keeps the remainder.

Hence, whilst undischarged, a BR doesn't owe tax, he/she doesn't actually have any money of their own...it's someone else's.

DarkConvict's friend should have laid aside an estimate of these amounts for paying to the OR...whether the OR imposed an IPA or not is another question....

If an IPA was imposed, but wasn't actually forwarded to the OR, then the OR will still be able to lay claim to those moneys......{IPO??]

Perhaps in your friend's case, the moneys claimed were to be divided up between the HMRC and the OR?

I'm glad you have brought this up Dark convict, there are a few members here who have had the NT code applied but have not been contacted about setting up an IPA and think they will be able to keep the extra money at the end of the tax year.

Your useful post highlights that it's highly likely that HMRC will catch up with you eventually, even if it is years down the line, and it really is therefore in a BR's best interest to make sure they contact the OR to get the NT IPA set up correctly.

The easiest way for this to be collected is for the PAYE deductions to keep on being deducted and the OR going to HMRC at the end of the tax year - I don't know why they don't do it this way??!!

Oh I thought it must be too easy or they might have done it that way in the first place. That is the sole reason I got my BR done at the end of the tax year (4 April 2008 - the last possible day!) because I didn't want the hassle of NT tax code.