What you need to know

On 17 January 2024 we issued an insolvency bulletin. This stated that in administration, the administrator should calculate the pro-rata proportion of Income Tax and National Insurance contributions due for the post appointment period only. They should then deduct and account for that Income Tax and National Insurance contributions only.

We apologise that this bulletin was incorrect.

All the Income Tax and National Insurance contributions deducted and due on any payslip issued to an employee after the relevant date of insolvency, including in administration, compulsory liquidation, creditors’ voluntary liquidation, bankruptcy and sequestration should be paid to HMRC as an expense of the insolvency.

This is because section 18 of the Income Tax (Earnings and Pensions) Act 2003 states that PAYE applies at ‘the time the payment is made’ or ‘the time when a person becomes entitled to payment of or on account of the earnings’.

All the Income Tax and National Insurance contributions due at the time of payment should be returned to HMRC by the employer who made them.

Employment income manual EIM42270 — employment income: basis of assessment for general earnings: the time when earnings are received: actual payment provides further guidance on this.

We also advised that any PAYE and National Insurance contributions owed by the company prior to the appointment of the administrator would be a secondary preferential claim against the company.

We would like to take this opportunity to clarify that any unpaid amounts of Income Tax and primary employee National Insurance contributions, deducted by the company on payslips issued prior to the relevant date of insolvency, are a secondary preferential claim against the company.

However, secondary employer National Insurance contributions is an unsecured, non-preferential debt.

You can read more guidance about HMRC as a preferential creditor and which taxes are:

• secondary preferential debts, in the order of priority
• unsecured non-preferential debts

What we need you to do

Where a payment to an employee covers both pre and post-appointment periods, the administrator (or any other insolvency practitioner acting in an insolvency procedure where payment is made to an employee in the same circumstances) should deduct and account for all the Income Tax and National Insurance contributions due for the payment period.

PAYE manual PAYE21130 — employer records: maintain employer record: insolvency of employer outlines that a company’s existing PAYE scheme should continue to be used for these post-appointment payments.

A new PAYE scheme is not necessary.

Further questions

The following have been updated with more information relating to this process:

• Insolvency (VAT Notice 700/56)
• PAYE manual PAYE21130 — employer records: maintain employer record: insolvency of employer

If you have any questions about this insolvency bulletin, please direct them to R3 or your representative group who will take them forward with HMRC.