bankruptcy

[jasmin26]

thanks Themas for your answer to my last posting. i have been looking at different sites tryin to make some sense of this tax and bankruptcy situation and have found this '' 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.'' i am hoping you can explian this further to me? my partner has no assets and has been told by the official reciever that no further action is to be taken by them.

[Ethel]

What do you need explaining? Your post is perfectly clear.

If you are made bankrupt and you are employed you should not pay any income tax until the following April. You should inform your tax office of your bankruptcy and instruct them to put you on a zero tax code straight away.

But if you change your job between bankruptcy and the following April you will pay income tax.

[Dassie]

Emergency tax means you pay at a flat rate of 22% without having the advantages of tax free and lower rate allowances that a "normal" tax code provides.

[jasmin26]

what i dont understand is what happens to the money he would have paid in tax. as he has been told there is no further action to be taken by the official receiver where does that tax go ? surely it cant be his to keep as this would seem to me he is somehow getting rewarded for going bankrupt which certainly makes no sense to me.

[Ethel]

When a person is declared bankrupt his debts are dealt with by the trustee or official receiver.

The income tax for the current year is treated exactly the same as any other debt and cannot be recovered from the individual after bankruptcy.

He will not have to pay any income tax this current tax year unless he changes his job. The Inland Revenue will not be attempting to recover it from him.

[jasmin26]

thanks Ethel. i was just confused because he has been told he doesnt have enough income to pay towards his debt and they are written off what would happen to the tax he wont be paying.i think its a bit clearer now.

[themas]

I hesitate to say it because I know from her posts that Ethel is normally very accurate, but I don't think she is right this time! If the tax which would have been paid if he had not gone bankrupt is kept by him, then he is financially in a better position - to the amount of that tax - by going bankrupt. My understanding of the position is that the NT tax code (which does not have to be requested by the bankrupt - it is done by the official receiver contacting inland revenue) is implemented so that the tax which would have been paid is given instead to the official receiver as a contrbution towards the costs of the bankruptcy.

Normally, the bankrupt is asked to sign an agreement to pay over to the OR each month the amount he has gained by not having tax deducted. I don't understand why your partner has not been sent such an agreement. My advice would be not to spend the money - keep it in an account in case it is asked for later - or go back to the OR again, tell him what has happened and ask for confirmation whether he can keep the money. (I don't think he'll get such confirmation!)

Incidentally, if the bankrupt changes jobs the NT tax code should be on the P45 & applied by the new employer.

[jasmin26]

thanks Themas. i will take your advice and put it to one side incase as you say its asked for at a later date.

[pepsicharlie]

How does this apply when one is self employed