SAM106100 | Records: bankruptcy: payments on account for year of bankruptcy

Any payments on account for the year of bankruptcy or sequestration are included in the provisional proof lodged with the trustee.

You may consider a written claim to reduce payments on account (under Section 59A TMA 1970) from the trustee in bankruptcy or sequestration provided sufficient information is available, including a knowledge of the taxpayer’s intentions for the rest of the year.

However, any repayment of the first payment on account arising following the claim to reduce will not be made. It will be taken into account when the final liability or repayment is established following submission of the SA return. You will already have used function AMEND TAXPAYER SIGNALS to set the No Repayment signal at the time of entering bankruptcy details on the SA record.

For a bankrupt employee, provisional proof may be lodged in respect of PAYE income for the year of bankruptcy (see subject ‘Employee Bankrupt: Coding Action and Provisional PAYE income Claim’ (SAM106060)). When making a claim to reduce payments on account the trustee is effectively stating that the liability for that year from all sources (including a PAYE income source on which code NT is operated) will be less than the total of the payments on account. A request to reduce payments on account below the estimated PAYE income liability should be

• Treated as invalid

And

• Returned to the trustee with a letter of explanation, giving details of the estimated PAYE income liability

Note: In some cases the original payments on account may be less than the estimated PAYE income liability. For example, payments on account total £1000 and estimated PAYE income liability is £2000 (giving rise to provisional proof of £3000). If the trustee advises liability is likely to be less than the provisional proof (but equal to or more than the estimated PAYE income liability) payments on account must not be reduced. However the estimated PAYE income liability included in the provisional proof should be adjusted

Say, in the above, the trustee estimates total liability for the year as £2500. If so, the payments on account of £1000 are not disturbed but the estimated PAYE income liability lodged in the provisional proof is adjusted to £1500

Where, in a bankrupt employee case, the trustee makes a valid claim to reduce payments on account for the year of bankruptcy (that is, a claim meeting the normal criteria set out in SAM1000 onwards and the reduced payments on account would not be less than the estimated PAYE income liability)

• Advise the Insolvency Claims Handling Unit dealing with the bankruptcy of the reduced payments on account. The Insolvency Claims Handling Unit will revise the provisional proof lodged for the year of bankruptcy to reflect the reduced payments on account (and, in so doing, withdraw the estimated PAYE income liability from the proof)

For example, provisional proof of £8000 lodged for year of bankruptcy, consisting of first and second payments on account of £3000 each and estimated PAYE income liability of £2000. Subsequently a claim to reduce payments on account to £4000 is accepted. The Insolvency Claims Handling Unit advises the trustee that provisional proof for the year of bankruptcy is now revised to £4000, that is, the first and second payments on account of £2000 each

Note: In the above example the estimated PAYE income liability drops out of the provisional proof. This is because the reduced payments on account reflect the trustee’s estimate of total liability for the year of bankruptcy, that is, liability arising from all sources falling within the bankruptcy