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HMRC internal manual

Self Assessment Manual

Records: bankruptcy: employee bankrupt: coding action and provisional PAYE income claim

When an employee becomes bankrupt refer to the instructions in the PAYE Manual for details of coding action. The coding instructions are unaffected by SA. In most cases an underpayment of tax will arise on the employment in which the taxpayer was engaged at the date of the bankruptcy order due to one or more of the following reasons

  • Restricting credit for net tax deducted in the period from 6 April to the date of the bankruptcy order for an underpayment from an earlier year coded out in the year of bankruptcy

And, where the taxpayer continues in the same employment

  • Repayment of net tax deducted from the date of the bankruptcy order to the point at which the employer starts to operate code NT Week 1
  • Non-deduction of tax from the point the employer operates code NT Week 1 to the following 5 April

The underpayment of tax arising from the above will be reflected in the SA return for the year of bankruptcy with the Self Assessment for that year being used by HMRC as the basis for lodging final proof in the bankruptcy.

If requested, send an estimate of the PAYE income liability for the year of bankruptcy to the Insolvency Claims Handling Unit. The Insolvency Claims Handling Unit will include the estimate in the HMRC provisional claim, together with any payments on account for the same year. If the trustee makes a claim to reduce the payments on account

  • Refer to instructions under subject ‘Payments on Account for Year of Bankruptcy or Sequestration’ (SAM106100)

The provisional claim becomes best and final in the absence of the SA return.

Voluntary arrangements

A bankrupt employee may apply for the bankruptcy order to be replaced by a voluntary arrangement. By replacing the bankruptcy order with a voluntary arrangement the employee is effectively undertaking to meet all liabilities arising from the date of the bankruptcy order. Code NT is issued in bankruptcy cases in which the employee continues in the same employment (with the underpayment resulting from its operation falling into the bankruptcy), but if the bankrupt then agrees a voluntary arrangement

  • Withdraw code NT (and issue a normal code on a Week 1 / Month 1 basis)


  • Make an electronic note in function MAINTAIN SA NOTES on the following lines: ‘BY replaced by VA. T/P liable for U/P due to withdrawal of code NT in year of BY’

Note: The SA record dealing with liability falling into the bankruptcy is now used for SA liability falling within the voluntary arrangement

The employee is liable to pay the underpayment for the period in which the withdrawn code NT was in operation. This liability is

  • Established on dealing with the return for the year in of bankruptcy (now voluntary arrangement)


  • Entered on the taxpayer’s new on-going SA record