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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
Updated
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Records: bankruptcy: bankruptcy: PAYE source with unlinked/dormant or no SA record (Action Guide)

When you receive formal notification on form INSOL 200 of a bankruptcy order and the taxpayer has an SA record which is not linked to the PAYE record (a dormant SA record) or there is no SA record, consider steps 1 - 30 below. Steps 22 - 30 only need be considered following receipt of the return for the year of bankruptcy. The guide is presented as follows

  Steps 1 - 3
   
  Steps 4 - 14
  Steps 15 - 19
  Steps 20 - 21
  Steps 22 - 30

 

For details of how to access any of the SA functions, select ‘Index Of Functions’ on the left of the screen.

 

Initial clerical action

1. Prepare an INSOL 100 sub-folder to hold the bankruptcy papers
   
  Note: Partnership and partners: It is an anomaly in the Court system that allows more than one person to be made bankrupt (for example, multiple partners) and to wind up a partnership in the same hearing. This means that all of the partners and the partnership could have the same court reference. ICHU will give each partner a separate ICHU reference. Partners are dealt with the same way as individuals.
2. Issue form INSOL 103 to the Official Receiver or trustee in bankruptcy. Where the bankrupt taxpayer is a subcontractor you must send a copy of the BY notification to the centralised CIS Team at ; CIS Newry, Custom House, Carnbane Way, Carnbane Industrial Estate, Newry BT35 6QG
3. Check for a dormant SA UTR by using the Taxpayer Business Service (TBS). If a UTR already exists and TBS shows SA as dormant, check that the dormant SA record does not show a Bankruptcy or Voluntary Arrangement signal. To check, access SA and
  * Select CASE SUMMARY to see if the record shows either ‘Taxpayer is BY’ or ‘Taxpayer is VA’ in red
  If the record does not show a Bankruptcy or Voluntary Arrangement signal
  * Follow step 4 onwards
  If the record does show a Bankruptcy or Voluntary Arrangement signal, the record should not be reactivated under any circumstances. Instead you will need to create a new SA Record. To do this
  * Select ‘New Taxpayer Sub Menu’ from the task bar in SA
  * Select ‘Set up Post BY/VA Individual’
  Note: Using this function will cross reference the two Bankruptcy/VA records automatically
  * Wait overnight and check that TBS now shows the new Post BY/VA UTR
  * Follow step 7 onwards
  If there is no existing TBS record
  * Follow step 16 onwards

Unlinked SA record

| 4. | TBS will show SA as dormant. You must reactivate the dormant SA record by | || |   | * Removing the last year return signal | |   | * Inhibit the entry/exit letter | |   | * Note the reason on SA notes for reactivating the dormant record as ‘SA record reactivated on dd/mm/yy to enable year of bankruptcy to be dealt with’ | | 5. | Wait overnight and then access TBS to check that the record shows that it is no longer dormant. If still shown as dormant, delay any further action until the record is shown as live | | 6. | When the record is showing as live, use Function AMEND TAXPAYER SIGNALS to | |   | * Set the SA Entry/Exit Letter Inhibited signal to ‘Y’ | |   | * Enter the end of the year in which the bankruptcy order is made in the ‘Last Return Required For Year Ending 5 April’ field, for example ‘08’ | |   | * Set the Manual Return signal to ‘Y if today’s date falls between 6 April and the date of the automatic selection process for returns issue.
 
(Note: The return is to be issued to the taxpayer, not the trustee/Official Receiver) | |   | * Where the annual selection process has already taken place before the Manual Return signal is set, as ‘BY Year’ returns must be captured using Local Data Capture (LDC), you must write to the taxpayer using OCA letter OCABY09 (or OCABY12 where Voluntary arrangement, a Trust deed or Sequestration applies) | |   | Note: Do not issue the letter until you have considered the actions required at step 15 below and also whether a post-bankruptcy record is required in accordance with steps 22 to 30 below, as this can be included in the letter as necessary. | |   | * Enclose a manually issued form SA100, noted ‘BY Year’ | |   | * Explain that it is too late to stop the automatically issued tax return and that it should be ignored. Add that the enclosed SA100 should be completed in its place and returned to the issuing office | |   | Note: Where the taxpayer is bankrupt and is also now deceased, the guidance remains the same. Issue OCADBY09 if the deceased was bankrupt, or OCADBY12 if the deceased had entered into a voluntary arrangement, trust deed or sequestration. In a deceased case, the manual return SA100 should be issued to the personal representative, or the capacitor, acting on behalf of the deceased taxpayer. | |   | * Set the ‘No Repayment’ signal to ‘Y’ to stop any repayment being issued automatically | |   | * Make a full SA Note of the position with confirmation that a manual return should be completed for the year of bankruptcy and also include the national insurance number for future reference. This UTR is only for the period up to the end of the year in which the bankruptcy occurred. The taxpayer cannot submit their tax return online in the year of bankruptcy, they must complete a manual return | | 7. | Use TBS function AMEND TAXPAYER DESIGNATORY DETAILS to update name details, as required in accordance with INSOL200 | | 8. | Use TBS function AMEND TAXPAYER ADDRESS to update private address details, as required at INSOL200 | | 9. | Use function AMEND TAXPAYER SIGNALS to enter | |   | * Insolvency details | |   | * Solvency Status ‘Insolvent’ | |   | * Insolvency Reference, using the pseudo reference BY0000/11 (BY0000/12 for 2012 and so on) | |   | * Relevant Date | | 10. | Use SA function SET UP CAPACITY DETAILS to enter details of the Official Receiver or trustee in bankruptcy as main capacity. Do not use TBS.

In Scotland ‘Other’ should be selected from the drop down menu and ‘Permanent Trustee’ entered in the Free Format Notes field (‘Trustee in Sequestration’ is not available in the drop down menu, and neither can it be entered in the limited space available in the notes field)    
  11. Use SA function AMEND TAXPAYER’S AGENT DETAILS to remove the agent details from the record and make a note of the agents details to update the post-bankruptcy record, where appropriate, see step 26. Make an SA Note of your actions
  12. Follow the instructions in the PAYE Manual at PAYE13060 onwards ensuring the correct freestanding credits are entered on the SA record which may arise due to late issue of NT code and that all pre-bankruptcy years are dealt with through NPS correctly
    * Insolvency Claims Handling Unit (ICHU) may ask you to provide an estimate of the PAYE income tax for the year of bankruptcy to be provisionally included in the HMRC claim. You only have to provide this information if ICHU request it. Retain a copy of this in the INSOL 100 if requested by ICHU
  13. Send a copy of form INSOL 200 to the office with responsibility for the employer PAYE scheme, if the taxpayer is also an employer. This office will record the cessation of the PAYE scheme on the employer record
  14. If you are dealing with a case in which the Official Receiver is the trustee, inhibit the statement following the advice in Action Guide ‘Request Inhibition of Statement’ (SAM131031) before the next statement is issued
    Note: Where the Official Receiver (Insolvency Service) requests information in respect of a bankruptcy case, you should also send a manual statement.
    * Follow the advice in Action Guide ‘Request Inhibition of Statements’ (SAM131031)
    * The statement inhibition should not be removed until 3 years following the tax year shown in the ‘Last SA Return Required’ field on the ‘Individual Signals’ page and there is no outstanding liability, or unallocated credits, on a statement. For example, at 6 May 2012, the Last SA Return Required field shows ‘10’ or earlier
    Notes:
    a) Where a customer is registered for online services, the noting of ‘Official Receiver’ in the capacity details automatically de-enrols them from online services. If the customer registers again, the activation code is sent to the Official Receiver who then returns it to the Online Services team. If the customer contacts us, you should advise them that the bankruptcy year should be dealt with by completion of a manual return and they cannot file online. If they wish to file online for years following bankruptcy, they should re-register using the new post bankruptcy UTR.
    b) Where the trustee is not the Official Receiver only inhibit statements where the trustee makes such a request.

No existing SA record

15. Follow the Action Guide ‘Set Up Individual Record’ (SAM100221), and using function SET UP INDIVIDUAL TAXPAYER
   
  * Create an SA record to deal with the bankruptcy remembering to set the SA Entry / Exit Letter Inhibited signal to ‘Y’ to prevent issue of the ‘Welcome’ letter
  * Enter the necessary information on the record including the NINO
  * Set the Manual Return signal to ‘Y’, if today’s date falls between 6 April and the date of the automatic selection process for returns issue. (Note: The return is to be issued to the taxpayer, not the trustee / Official Receiver)
*   * Issue OCA letter OCABY09 (or OCABY12 where Voluntary arrangement, a Trust deed or Sequestration applies) choosing the correct options for the case
  Note: Where the taxpayer is bankrupt and is also now deceased, the guidance remains the same. Issue OCADBY09 if the deceased was bankrupt or OCADBY12 if the deceased had entered into a voluntary arrangement, trust deed or sequestration. Do not issue the letter until you have considered the guidance at steps 22 to 30.
  * If today’s date falls after the automatic selection process for returns issue has run, prepare a return for manual issue on 6 April noting ‘BY Year’ prominently on the return
16. Use function AMEND TAXPAYER SIGNALS to enter
  * Insolvency details
  * Solvency Status ‘Insolvent’
  * Insolvency Reference, using the pseudo reference BY0000/11 (BY0000/12 for 2012 and so on)
  * Relevant Date
  * Priority Colln Action (PCA) signal (this is important for Management Statistics purposes
17. Use SA function SET UP CAPACITY DETAILS to enter details of the Official Receiver or trustee in bankruptcy as main capacity on the SA record. Do not use TBS.
In Scotland ‘Other’ should be selected from the drop down menu and ‘Permanent Trustee’ entered in the Free Format Notes field (‘Trustee in Sequestration’ is not available in the drop down menu, and neither can it be entered in the limited space available in the notes field)    
  18. On the following day, use function AMEND TAXPAYER SIGNALS to
    * Enter the end of the year in which the bankruptcy order is made in the Last SA Return Required For Year Ending 5 April field, for example ‘12’
Note: Do not set the last ‘SA Return Required’ signal on the same day the new SA record is set up. The information from the new record will flow to NPS overnight to set the SA indicator and setting the last ‘SA Return Required’ signal on the following day will cause the last SA year to flow to NPS correctly.    
    * Set the No Repayment signal to ‘Y’, to stop any overpayment being repaid automatically
  19. Send a copy of form INSOL 200 to the office with responsibility for the employer, if the taxpayer is also an employer. They will deal with the cessation of the PAYE Scheme

PAYE record

20. Follow the instructions in the PAYE Manual at PAYE13060 onwards ensuring all pre-bankruptcy years are dealt with correctly and any freestanding credits/underpayments are added to the SA statement
   
21. When there is a PAYE repayment due for earlier years and after checking with ICHU there are other debts outstanding other than SA debts, the overpayment needs to be put into the SA statement and ICHU informed so they can transfer the overpayment to an OAS account and deal with any set off

Post-bankruptcy SA record

  Note: A post-bankruptcy record will only be needed in cases where SA criteria continues to be fulfilled. If an SA record has been created to deal with the year of bankruptcy only, then a post-bankruptcy SA record will not be needed.
   
  If a post-bankruptcy record has to be set up, you must ensure that TBS shows the pre-bankruptcy SA record as dormant. You can only continue with the next steps if TBS shows SA dormant and the SA record shows the UTR as BY
22. Use function SET UP POST BY / VA INDIVIDUAL to create a new SA record for the taxpayer. You must however ensure that TBS shows that the existing record is dormant before using the function to create the new record
  Note: Post VA records should only be set up by VAS (Voluntary Arrangement Service). For further information see SAM106120.
  Once the UTR from the pre-bankruptcy record has been input, this function will
  * Automatically populate the post-bankruptcy record with data from the pre-bankruptcy record, including
  * Name, address and date of birth
  * NINO
  * Return details and Signals
  Note: The data and values on the screen can be amended at this stage
  * Automatically set the SA Entry / Exit Letter Inhibited signal to ‘Y’
  * Automatically store the UTR of the original record on the on-going SA record and store the UTR of the on-going SA record on the original SA record
  * Issue OCA letter OCABY09 (or OCABY12 where Voluntary arrangement, a Trust deed or Sequestration applies). Send a copy to the agent if form 64-8 is held
  Note: Where the taxpayer is bankrupt and is also now deceased, the guidance remains the same. Issue OCADBY09 if the deceased was bankrupt or OCADBY12 if the deceased had entered into a voluntary arrangement, trust deed or sequestration.
23. Use function SET UP POST BY / VA INDIVIDUAL to
  * Set the ‘Manual Return’ signal to ‘Y’ for the year of bankruptcy. For example, if bankrupt in 2011-12, set the signal for that year and make the following SA Note
‘Manual Return signal set. Return for XX-XX not required as cleared on pre-BY record. Remove signal after 5 April XX, the end of the BY year’  
   
This message can be found by selecting SEES, Notes Paster and under the ‘Returns’ category, selecting the message ‘Bankruptcy - Man Ret signal’.
  
However if today’s date falls after the automatic selection process there is no need to set the ‘Manual Return’ signal. You will not need to issue a return from this record for the year of bankruptcy (the return is to be issued from the bankruptcy record rather than new record). | |     | * Enter Communications Address details, where necessary, before using function MAINTAIN RETURN PROFILE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | |     | * Enter new capacitor’s details, where necessary, before using function MAINTAIN RETURN PROFILE (the new capacitor will not be the Official Receiver as this is a post-bankruptcy record). Note: The ‘Abroad’ indicator cannot be set if a postcode is present                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | |     | * Use the ‘Return Profile’ button to access function MAINTAIN RETURN PROFILE to record the supplementary pages to be issued with the basic return                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | |     | Note: The information will flow overnight to the Citizen Identification (CID) Framework. If there is a current PAYE main source record a link will be created automatically between the SA record and the PAYE record                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | | 24. | Where the source of income received is income from property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | |     | * Enter a free format note in function AMEND TAXPAYER SIGNALS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | | 25. | If an agent was previously acting according to the pre-bankruptcy SA record a new 64-8 is not required for the post-bankruptcy record. You must put the correct agent code on the new SA record for the agent details to be included.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | | 26. | If you receive a 64-8 for a new agent, this should be sent to CAAT in accordance with [SAM100200](https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam100200) to deal with                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | | 27. | Where the individual taxpayer has trading profits including profit from a profession or vocation. (Note: This excludes a partnership trade source, which must be set up on the partnership record)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | |     | * Use function SET UP TRADE, once for each trading source you want to set up. If the taxpayer has more than one trade / partner source, set up the main source first. Alternatively, where the SA record is not linked to PAYE, you can access function MAINTAIN SOURCES to nominate the main source                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | |     | * If the source is within the construction industry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | |     | * Use function MAINTAIN COMPLIANCE SIGNALS to enter on the SA record the nature of the taxpayer’s involvement in the construction industry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | | 28. | Where the taxpayer has a partner source                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | |     | * Use function SET UP PARTNER, once for each partner source you want to set up (this creates a link between the individual taxpayer record and the partnership records)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | |     | And where the SA record is not linked to PAYE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | |     | * Use function MAINTAIN SOURCES to nominate the main source, if the taxpayer has more than one trade / partner source and you did not set up the main source first                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | |     | Note: You should show the date of commencement as 6 April in the year following the year of bankruptcy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | | 29. | Where the taxpayer is responsible for operating Class 1 NIC on a DC source of PAYE income, ask the Employers Section to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | |     | * Open a Direct Collection (Employee Only NIC) scheme                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | |     | * Issue the information pack as detailed in the PAYE Manual                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | | 30. | Where the taxpayer has indicated the requirement for special output, set the relevant signal, (Audio, Braille or Large print). For Welsh Language cases only, contact HMRC Welsh Contact Centre, Ty Moelwyn, Porthmadog, Gwynedd. LL49 9AB. Tel 0300 200 1900. WAM BOX 906                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | |     | Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | |     | a) Do not create payments on account for the year of bankruptcy on the new SA record. Any payments on account due for the year of bankruptcy exist on the old SA record. The return for the year of bankruptcy is used to establish any adjustment to the payments on account for the year of bankruptcy (old SA record) and any payments on account due for the following year (new SA record).                                                                                                                                                                                                                                                                                                                                                                                      | |     | b) If no post-bankruptcy record was set up because SA criteria was not met, but a few years later the taxpayer completes CWF1 / SA401 / SA402 or SA1, you must use function SET UP POST BY INDIVIDUAL. This will ensure the NINO, UTR will transfer to the new record correctly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |