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HMRC internal manual

PAYE Manual

Employer records: maintain employer record: insolvency of employer

The formal insolvency of an employer has one of two aims

  • To close down the business

Or

  • To rescue the business by allowing it to continue

The term insolvency is generally used to refer to

  • Bankruptcies
  • Company liquidations
  • Administrative receiverships
  • Receiverships
  • Administrations for companies and partnerships
  • Voluntary arrangements for companies, partnerships and individuals

The action to take when an employer becomes insolvent depends on whether the business

  • Has ended

Or

  • Is continued by the insolvency practitioner (IP)

Or

  • Is continued by the debtor employer in Voluntary Arrangement (VA)

Business ends

The insolvency practitioner or the debtor employer in a VA follows the normal procedures for an employee leaving the employment, and issues form P45.

A cessation date is entered onto the existing employer record. The cessation date is the date of insolvency.

Business continues under the control of an IP

Where an IP takes control of the business as an administrator or administrative receiver they are required to deduct and account for PAYE as agent of the company. The company remains the employer under PAYE Regulations.

The existing employer record is ceased. The cessation date is the relevant date notified to you by Insolvency Claims Handling Unit, Newcastle.

A new employer record is created in the name of the company. The Insolvency Practitioner is noted as the payroll & correspondence details.

Business continued by the debtor employer in Voluntary Arrangement

After approval of a Voluntary Arrangement if a business continues to employ staff the debtor is the employer. They may retain most, but lay off some, employees and they are required to operate PAYE in the normal way.

The existing employer record is ceased. The cessation date is the day prior to the approval of the Voluntary Arrangement.

A new employer record is created in the name of the employer.

Note: ‘Voluntary Arrangement’ must not be included in the employer name or address details of any employer record.

It is possible for an employer to become insolvent and for the business to continue under the control of the Insolvency Practitioner in administration before a Voluntary Arrangement is approved.

If this arises, there will be an employer record for each period

  • Pre administration
  • Administration
  • Voluntary Arrangement

The Insolvency Claims Handling Unit, Newcastle will advise you when an employer has become bankrupt, gone into liquidation or administration receivership.

The Voluntary Arrangement Service, Worthing will advise by VAS8 when an employer has entered into a voluntary arrangement.

The Insolvency Service, Worthing will advise you by AD8 when a company has gone into administration.

Each office will tell you whether a new employer record is required if the business is continuing.

The following is a list of forms that you may receive from ICHU, VAS or IS

  • INSOL219 - request from ICHU to create a new employer record for the post insolvency period
  • INSOL238 - request from ICHU to cease an employer record
  • VAS8 - advice from VAS to cease an employer record and create a new employer record
  • VAS12 - advice request from VAS that a voluntary arrangement proposal has been rejected. The employer record does not require updating
  • AD8 - request from IS to cease an employer record and create a new employer record for the administration period

You must not take action, without confirmation or request from ICHU, VAS, or IS, to

  • Cease or create new employer records

Or

  • Merge employer records for the same employer where the insolvency indicator is set in any one of them