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HMRC internal manual

Self Assessment Manual

From
HM Revenue & Customs
Updated
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Records: bankruptcy: introduction

 

General

Note: A full introduction to bankruptcy can be found in the Insolvency Manual.

In years subsequent to that in which the bankruptcy order (or award of sequestration) was made, a bankrupt is responsible for payment in the ordinary way in respect of any income or gains. Similarly a bankrupt is responsible for payment in respect of any source of income commencing after the date of the bankruptcy order / award of sequestration within the year of bankruptcy.

The debtor may continue to receive income and / or gains that are liable to Self Assessment. In this event, his or her tax affairs to the date of the bankruptcy order must be separated from those from that date. This is achieved in live SA cases by

  • Entering the capacity details on the taxpayer’s existing SA record (by using SA functions and not Taxpayer Business Service functions (TBS)), which is the accounting record for SA liabilities falling within the bankruptcy
  • Setting up a new SA record by using SA function SET UP POST BY/VA INDIVIDUAL for the taxpayer from the date of the bankruptcy order. This is the accounting record for SA liability arising on any source of income commencing after the date of the bankruptcy order / award of sequestration within the year of bankruptcy and SA liability for later years.

Note: A live SA PAYE case is one where the SA and PAYE records are linked

For the period to the date of the bankruptcy order, communication will be with the Official Receiver or trustee in bankruptcy. For the period after the date of bankruptcy, communication will be with the taxpayer.

For the year of bankruptcy, only one tax return should be completed and this should be captured against the pre-bankruptcy SA record. Further details regarding this can be found at SAM121270.

Request for copies of documents / information

The rules of confidentiality apply to disclosure of documents or information to the Official Receiver / trustee. You must not normally provide copies of accounts or returns to the Official Receiver / trustee without a signed authority from the taxpayer / debtor authorising you to do so. The following are exceptions

  • Trustee is legally responsible for dealing with a specific taxation matter of the debtor (such as an open appeal or loss claim relating to years falling within the period of bankruptcy). In this case copies of accounts, returns and correspondence relevant to the outstanding matter (or extracts of relevant information from the same) may be sent to the trustee without first obtaining the debtor’s authority. Each case must be judged on its merits
  • Permanent trustee (Scotland). Under S38 of the Bankruptcy (Scotland) Act 1985 the permanent trustee appointed to act for a debtor is entitled to have access to all documents relating to the assets, business or financial affairs of the debtor (and to make copies of the same). In this case copies of relevant documents can be given to the permanent trustee on receipt of a request

You can find further information on confidentiality in the Information Disclosure Guidance Manual (IDG).

SA records

Separate SA records may exist

  • To the date of the bankruptcy order

And

  • Subsequent to the date of the bankruptcy order

Allowances and deductions

All allowances and deductions for the year of bankruptcy, unless they specifically apply to a particular source, are apportioned on the fairest possible basis. This will normally be a simple time apportionment. Where that method results in a balance of unused allowances in one of the periods, you should use only enough to extinguish liability in that period and the remainder in the other period.

The following simple example illustrates the point. On issue of the bankruptcy order, the taxpayer ceases employment or trade. Later in the year of bankruptcy he takes up employment. You authorise a Wk1/Mth1 coding.

When using the completed SA return (the pre-bankruptcy record should be used to capture the SA return for the year of bankruptcy) to calculate the liability to and from the date of the bankruptcy order, the allowances and reliefs are time apportioned. The liability for the post-bankruptcy period should equate approximately to the PAYE deductions from the post-bankruptcy source. No further liability will be due for that period.

SA return for the year of bankruptcy

Only one SA return will be completed for the year of bankruptcy.

You may have difficulty in obtaining a completed SA return for the year of bankruptcy, completion of which remains the responsibility of the debtor. Neither the Official Receiver nor the trustee in bankruptcy has any responsibility in this respect.

Although a completed SA return for the year of bankruptcy has not been received, you may receive either

  • A trustee’s written statement that there is no liability for the year of bankruptcy

Or

  • A Statement of Affairs which provides evidence that there is no liability for the year

In this situation it is not intended that you put further effort into pursuing completion of the return. You should accept the evidence provided as being in place of the return, and create a nil return charge. Detailed advice on return capture is available in section ‘Individuals Returns’ (SAM121000 onwards).

You should also record the action taken and the reason for taking that action

  • Leave clear and concise details on SA notes
  • Use function AMEND TAXPAYER SIGNALS to make a suitable entry in Free Format Notes

This section

This section gives advice on how taxpayer records are affected by bankruptcy. Advice on all aspects of bankruptcy is available in the Insolvency Manual.