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HMRC internal manual

Self Assessment Manual

From
HM Revenue & Customs
Updated
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Records: bankruptcy: return for the year of bankruptcy / sequestration

 

General

Only one SA return will be completed for the year of bankruptcy, even though separate SA records may exist

  • To the date of the bankruptcy order

And

  • Subsequent to the date of the bankruptcy order

The making of a return for the year of bankruptcy remains the responsibility of the taxpayer despite the making of a bankruptcy order or award of sequestration.

A return is normally required to

  • Establish the liability for the bankruptcy year for which a final proof or claim can be lodged
  • Establish the liability for the bankruptcy year for which the taxpayer is responsible in respect of any new source of income
  • Enable any repayment to be made in respect of both pre and post-bankruptcy events within the bankruptcy year
  • Establish payments on account for the year following the year of bankruptcy

Where this is justified on the evidence available, an Insolvency Practitioner’s Nil Declaration or Statement of Affairs may take the place of a formal return in cases where prior to Self Assessment a no profit / no loss would have been agreed

  • If the records were inadequate

Or

  • The cost of preparing accounts was not justified

The decision to accept a Nil Declaration rests with the office with responsibility for Processing work.

You will 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 a clear and concise note on the taxpayer’s file, in a file case, or in the PN pad in a Non File case
  • Use function AMEND TAXPAYER SIGNALS to make a suitable entry in Free Format Notes

Return not received by filing date

Where the return for the year of bankruptcy is not received by the filing date the Debt Management office will pursue it if there is evidence to indicate the taxpayer has post bankruptcy liability for that year.

If the return is not received the provisional claim for the year of bankruptcy becomes ‘best and final’. In this situation the Insolvency Claims Handling Unit dealing with the bankruptcy will ask the office with responsibility for Processing work to

  • Use function CREATE RETURN CHARGE to set up a charge equal to the amount claimed provisionally for the year of bankruptcy

Note: For a bankrupt partnership or a partnership in which all the partners are bankrupt it may be decided not to pursue the partnership return. You cannot use the above function on an SA partnership record. Instead

* Use function LOG RETURN, leaving today’s date in the Date Return Received field. As a result today’s date will be entered as the ‘Date of Receipt’ of the return on the SA partnership record
* Leave a clear and concise note on the partnership file, in a file case, or in the PN pad in a Non File case
* Use function AMEND TAXPAYER SIGNALS to make a suitable entry in Free Format Notes

For PAYE taxpayers a provisional PAYE income claim (together with any payments on account for the year of bankruptcy) may have been lodged with the trustee dealing with the bankruptcy. Where you hold information affecting the provisional PAYE income claim, such as P14 details, and it is appropriate to enter a charge for the year of bankruptcy

  • Revise the provisional PAYE income amount
  • Use function CREATE RETURN CHARGE to set up a charge for the year of bankruptcy equal to the total of any payments on account for that year plus the revised PAYE income amount
  • Advise the Insolvency Claims Handling Unit that you have set up a charge for the year of bankruptcy that differs from the provisional amount claimed in the bankruptcy for that year, giving details of how the charge has been calculated

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

  • Use function AMEND TAXPAYER SIGNALS to make a suitable entry in Free Format Notes

If the return for the year of bankruptcy is subsequently received

  • Follow the instructions in the subject ‘Bankruptcy Cases’ in section ‘Individuals Returns’ in business area ‘Returns’
  • Use function CREATE RETURN CHARGE to revise the charge for the year of bankruptcy to an amount equal to the liability falling within the bankruptcy
  • Use function AMEND TAXPAYER SIGNALS to delete the entry in Free Format Notes made when function CREATE RETURN CHARGE was used to set up a charge equal to the provisional claim for the year of bankruptcy
  • Advise the Insolvency Claims Handling Unit that the return has been received and of the revised charge to be lodged as final proof for the year of bankruptcy

Note: If you receive a return for the year of bankruptcy in respect of a bankrupt partnership (or a partnership in which all the partner’s are bankrupt) follow the above, ignoring the instruction to use function CREATE RETURN CHARGE. Instead capture the return in the normal way in LDC. The Insolvency Claims Handling Unit should be advised of each bankrupt partner’s revised partnership liability for lodging as final proof for the year of bankruptcy

Bankruptcy finalised before filing date and return outstanding

If the administration of the bankruptcy is concluded before the filing date of the return for the year of bankruptcy (and the return has not been received)

  • The provisional proof becomes ‘best and final’
  • The Insolvency Claims Handling Unit will ask the office with responsibility for Processing work to use function CREATE RETURN CHARGE to set up a charge equal to the amount claimed provisionally for the year of bankruptcy

Follow the instructions in the sub-heading ‘Return not received by filing date’

  • On receipt of such a request

And, where

  • The return is subsequently received

Return received at Bankruptcy hearing

Exceptionally a return may be handed to the Solicitor of HMRC at or before a Bankruptcy Hearing. In this event, the return will be sent to the office with responsibility for Processing work with a covering memo, clearly headed ‘BANKRUPTCY HEARING’, asking for action to be taken.

It is important that the case is given priority and the Solicitor’s instructions in the memo are followed. HMRC may not be able to pursue its claim if this is not done.

Late filing penalties

Late filing penalties imposed after the date of the bankruptcy order or award of sequestration are the responsibility of the taxpayer. However, only in exceptional circumstances will we impose late filing penalties for any year in a bankruptcy case.

Determination

A determination for the year of bankruptcy (or other years) is not normally made after the date of the bankruptcy order. However, the Debt Management office dealing with the bankruptcy will consider making a determination if, for example, it is needed to encourage the filing of a return or the dividend is likely to be worthwhile.

Surcharge

Surcharge applied to tax years 2009-2010 and earlier and was replaced by late payment penalties for the tax years 2010-11 and later. Further information regarding late payment penalties can be found at SAM61250

Surcharges in respect of liability arising in the bankruptcy year from sources which commence after the date of bankruptcy are the responsibility of the taxpayer. We will not levy surcharges in respect of liability arising in the bankruptcy year prior to the date of bankruptcy.