Guidance

Pay tax and National Insurance on preferential dividends — insolvency practitioner bulletin 7 (2021)

Published 31 January 2025

The section ‘Preferential dividends — payment of tax and National Insurance’ in Insolvency practitioner bulletin 2 (2021): using the correct payment reference number when making dividend payments, has prompted some further questions.

We have updated the guidance and added a question and answer section. We hope this helps you.

There may be times when you need to record tax and National Insurance due on a dividend paid to the former employees of an insolvent entity.

For example:

• holiday pay
• arrears of pay arising before the date of insolvency
• pay in lieu of notice claims
• redundancy pay

Please help us ensure these payments are allocated correctly by setting up a new PAYE Scheme.

Contact us to set up a scheme when you are ready to make the payments.

Once the final dividend payment has been made, please make sure HMRC receives a final Full Payment Submission (FPS). This should have a cessation date for both the former employees of the insolvent entity to whom a dividend payment was made, and the Employment Protection Act (EPA) Scheme.

This will prevent any reminder or late penalty notices being issued, if the scheme remains inactive.

How do I set up a PAYE Scheme

Contact the Employer helpline, and tell the adviser you need to set up an Employment Protection Act Scheme.

They will ask you for the following information:

• the name and National Insurance number of the directors, if available
• your phone number and email details
• your registered office address
• any other correspondence addresses HMRC may need to note for you
• date of the first pay day

Our adviser will then ask some more questions, tell you what you will receive and when.

Once the Employment Protection Act Scheme is set up, read PAYE and payroll for employers for guidance to operate PAYE.

Making additional payments

If you need to make additional payments after the final Full Payment Submission has been submitted, please contact the Employer helpline who can arrange for the scheme to be re-started.

This can only be done either:

• in the same tax year as the date of cessation or cancellation
• the next tax year after the date of cessation or cancellation

For any other year, a further scheme will need to be set up.

Update to Insolvency practitioner bulletin 2 (2021)

We have updated Insolvency practitioner bulletin 2 (2021): using the correct payment reference number when making dividend payments to include a link to this bulletin.

Questions and answers

Question 1
If an insolvent entity continues to employ employees after the insolvency practitioner’s appointment and makes payments in respect of any sums owed to employees which relate to the pre-insolvency period, should an Employment Protection Act Scheme still be set up for those payments?

Answer to question 1
Yes, an Employment Protection Act Scheme should still be set up for the payments.

Question 2
If an insolvent entity continues to employ employees after the insolvency practitioner’s appointment, what scheme should be used when there is tax and National Insurance due on employment income accrued both pre and post-administration?

For example, a company goes into administration on 15 August and its employees are paid monthly in arrears on the last calendar day of the month.

The company continues to trade, and the administrator decides that staff will receive their normal monthly salary payment in full on 31 August.

That payment includes:

• their claim for arrears of pay from 1 to 14 August
• post administration salary from 15 to 31 August

Other employees may receive holiday pay where entitlement has been accrued both before and after the date of administration.

Answer to question 2
Where there is tax and National Insurance due on employment income earned during both the pre and post administration period, these should be reported on an Employment Protection Act Scheme.

Question 3
I am concerned that requiring an insolvency practitioner to telephone HMRC’s Employer helpline could result in excessive wait times or speaking to HMRC staff who are not familiar with insolvency.

Could contact be made instead through a dedicated email address or phone number?

Answer to question 3
Unfortunately a dedicated email address or phone number is not possible.

Internal guidance has been updated to ensure that Employer helpline advisers have the information they need to deal with requests to set up Employment Protection Act schemes.

Question 4
If the insolvent entity is a sole trader or a partnership, what information do you require instead of the National Insurance number of directors?

Answer to question 4
National Insurance number of the sole trader or partners.

Question 5
Where the address of the registered office is asked for, is this the registered office address of the employer if it was a company or the insolvency practitioner’s own firm if they trade through a company?

Answer to question 5
This is the registered office address of the insolvency practitioner.

Question 6
Where the guidance reads, ‘any other correspondence addresses HMRC may need to note for you’, does that relate to addresses for the insolvency practitioner dealing with the insolvent entity?

Answer to question 6
This would be an alternative address to the registered office.

For example, a registered insolvency practitioner may have several office locations and may wish to nominate one as the correspondence address.

Question 7
Where the date of the first pay day is requested, does this refer to the date the former employee was first paid by the insolvent entity, or the date of the first dividend payment?

Answer to question 7
This is the date of the first dividend payment.

Question 8
Often, there can be a considerable length of time between dividends being paid in an insolvency.

If a second or subsequent dividend is declared more than one tax year after the first, what action should the insolvency practitioner take?

Answer to question 8
As referenced in the guidance, a scheme can be re-started but only:

• in the same tax year as the date of cessation or cancellation
• the next tax year after the date of cessation or cancellation

For any other year, a new scheme will need to be set up.

If you need to restart or set up a new scheme, contact the Employer helpline.

Question 9
Are you able to provide details of a point of contact at HMRC for insolvency practitioners who have further queries?

Answer to question 9
If insolvency practitioners have any further queries about this guidance, they should be directed through R3 or your representative body who will take them forward with HMRC.