SAM106032 - Records: bankruptcy cases: bankruptcy - existing SA record with linked PAYE record (Action Guide)

When you receive formal notification on form INSOL 200 of a bankruptcy order, follow steps 1 - 26 below. The guide is presented as follows

Initial clerical action - Steps 1 - 4
Existing SA record - pre-bankruptcy record - Steps 5 - 10
PAYE record - Steps 11 - 16
New post-bankruptcy SA record - Steps 17 - 26

For details of how to access any of the SA functions, select ‘Index Of Functions’ on the left of the screen.

Initial clerical action

1. Note: Partnership and partners: It is an anomaly in the Court system that allows more than one person to be made bankrupt (for example, multiple partners) and to wind up a partnership in the same hearing. This means that all of the partners and the partnership could have the same court reference. ICHU will give each partner a separate ICHU reference. Partners are dealt with the same way as individuals

2. For English, Northern Irish and Welsh cases: Check if TNIDIS authority held. If there is no copy of the TNIDIS, or other authority, to repay the Official Receiver or other Trustee / Insolvency Practitioner, you must request this by issuing OCABY03. Allow 10 weeks or the TNIDIS to be received. We do not request it more than once. TNIDIS is NOT relevant for Scottish cases. In Scotland ‘Bankruptcy’ refers to Sequestration and Trust Deed cases

3. If the taxpayer has a PAYE source, follow the instructions in the PAYE Manual at PAYE13060 onwards plus the following

  • EIS Edinburgh or EIS Newcastle (formally referred to as Insolvency Claims Handling Unit (ICHU)) may ask you to provide an estimate of the PAYE income tax for the year of bankruptcy to be provisionally included in the HMRC claim. You only have to provide this information if it has been asked for. Note the records with details of the information provided to EIS

4. EIS will send a copy of form INSOL 200 to

  • The DMS Bankruptcy queue where the Teams in East Kilbride will deal with it
  • The office with responsibility for the employer PAYE scheme, if the taxpayer is also an employer. This office will record the cessation of the PAYE scheme on the employer record

Existing SA record - pre-bankruptcy record

5. Use function AMEND TAXPAYER SIGNALS to enter

  • Insolvency details
  • Solvency Status ‘Insolvent’
  • Insolvency Reference, using the pseudo reference BY0000/08 (BY0000/09 for 2009 and so on)
  • Relevant Date
  • The Insolvency reference number (ICHU Ref / EIS Ref) on free format notes

6. Use function AMEND TAXPAYER SIGNALS to

  • Enter the end of the year in which the bankruptcy order is made in the Last SA Return Required For Year Ending 5th April field, for example ‘08’
  • Set the Manual Return signal to ‘Y’, if today’s date falls between 6 April and the date of the automatic selection process for returns issue. (Note: The return is to be issued to the taxpayer, not the trustee / Official Receiver)
  • Where the annual selection process has already taken place before the Manual Return signal is set, as ‘BY Year’ returns must be captured using Local Data Capture (LDC), you must write to the taxpayer using SEES letter OCABY09 (or OCABY12 where Voluntary arrangement, a Trust deed or Sequestration applies) using the correct options and explaining that it is too late to stop the automatic issued tax return

Note: Do not issue the letter until you have considered whether a post-bankruptcy record is required in accordance with steps 17 to 26 below as this can be included in the letter as necessary

  • Tell the taxpayer the return should be ignored and that the enclosed form SA100 should be completed in its place and returned to the issuing office

Note: Where the taxpayer is bankrupt and is also now deceased, the guidance remains the same. Issue letter OCADBY09 if the deceased was bankrupt, or OCADBY12 if the deceased had entered into a voluntary arrangement, trust deed or sequestration. In a deceased case, the manual return SA100 should be issued to the Personal representative, or the capacitor, acting on behalf of the deceased taxpayer

  • The manual SA100 should be noted ‘BY’ in red in the top right hand corner and should be issued to the taxpayer and not the Official Receiver
  • Note SA Return Summary with the clerical date of issue
  • Update SA notes to show the national insurance number and to state that the manual return has been issued and should be completed. The taxpayer cannot submit the year of bankruptcy return online. This UTR should not be reopened. It is only for the period up to the date of bankruptcy
  • Inhibit the SA251 exit letter by setting signal ‘Y’
  • Set the No Repayment signal to ‘Y’, to stop any overpayment being repaid automatically
  • If not already done so, issue OCABY09 or OCABY12 choosing the correct options for the case

Note: Once all these signals have been set on SA you must wait overnight to check the BY signal is set on the SA record. The PAYE link should also have been broken. You must wait until the BY signal is on the SA record and the NINO is no longer linked before you continue with step 7 onwards

7. Use TBS function AMEND CAPACITOR DETAILS to cease any existing live capacity details

8. Use SA function SET UP CAPACITY DETAILS to enter details of the Official Receiver or trustee in bankruptcy as main capacity on the SA record. Do not use TBS

In Scotland, ‘Other’ should be selected from the drop down menu and ‘Permanent Trustee’ entered in the Free Format Notes field (‘Trustee in Sequestration’ is not available in the drop down menu, and neither can it be entered in the limited space available in the notes field). Note: Where an Insolvency Reference is present on an SA record there will be no automatic flow of capacitor information between SA and TBS

9. Use SA function AMEND TAXPAYER’S AGENT DETAILS to remove the agent details from the record and make an SA note of the full agents details to update the post-bankruptcy record, where appropriate, in accordance with step 20. Make an SA Note of your actions

10. If you are dealing with a case in which the Official Receiver is the trustee, inhibit the statement following the advice in Action Guide ‘Request Inhibition of Statement’ (SAM131031) before the next statement is issued

Note: Where the Official Receiver (Insolvency Service) requests information in respect of a bankruptcy case, you should also send a manual statement if we have received a signed TNIDIS or other written authorisation from the taxpayer

The statement inhibition should not be removed until 3 years following the tax year shown in the ‘Last SA return Required’ field on the ‘Individual Signals’ page and there is no outstanding liability, or unallocated credits, on a statement. For example, at 6 May 2011, the last SA return required field shows ‘09’ or earlier

Notes:

a) Where a customer is registered for online services, the noting of ‘Official Receiver’ in the capacity details automatically de-enrols them from online services. If the customer registers again, the activation code is sent to the Official Receiver who then returns it to the Online Services team. If the customer contacts us, you should advise them that the bankruptcy year should be dealt with by completion of a manual return and they cannot file online. If they wish to file online for years following bankruptcy, they should re-register using the new post bankruptcy UTR

b) Where the trustee is not the Official Receiver only inhibit statements where the trustee makes such a request

PAYE record

11. Follow the guidance in the PAYE Manual at PAYE13062 onwards for those PAYE cases with an existing SA record. If code NTX has been operated late, the Official Receiver is still entitled to the tax repayment due for the period when code NTX should have been operated if form TINDIS has been received

This Freestanding Credit (FSC) must be transferred to the SA record

12. If the FSC added to the SA record relates to the late operation of NTX code this repayment should be made to the Official Receiver

Note: Form TNIDIS is notification for the Official Receiver / Insolvency Practitioner to receive the repayment. If this is not held you must request it by issuing form OCABY03 to the Official Receiver / Insolvency Practitioner

Any repayment arising from the NTX coding CANNOT be used to set against any known debts that arose in the period up to and including the end of the tax year in which the bankruptcy arose

13. Action to be taken when FSC relates to the late operation of NTX code and there are no outstanding debts on the Pre BY SA record

  • Use SA function CREATE FREESTANDNG CREDIT to enter the amount onto SA. The EDP will be set automatically at the date the FSC is created
  • Select the [OK] button
  • Select REPAY button. You will be taken to SA function ISSUE REPAYMENT FROM OVERPAID BALANCE
  • Send the repayment to the Official Receiver as ‘Nominee’, unless the Official Receiver has requested that the payment is sent to an alternative address, or there is a different Insolvency Practitioner
  • Use ‘The Insolvency Service’ as the Nominee Name. For surname, use ‘Service’ and for forenames use ‘The Insolvency’
  • For the address use the Court Name and number (for example Nottingham 123/11), followed by the Official Receiver’s Birmingham address as follows
  • OR Receipts & Payments, PO Box 10856, Birmingham, B2 4YT

Note: For Official Receiver, Northern Ireland, cases, the repayment should go to the local office address, not the Birmingham address

14. Action to be taken when the FSC relates to late operation of NT code and there are outstanding debts on the Pre BY SA record

Use Informal Standover to temporarily reduce the debts to zero BEFORE creating the FSC. Then follow the same process as Step 13

15. You must also carry out the following

  • Update SA notes with ‘Freestanding Tax Credit £……. Repayment from XX/XX/XX date of bankruptcy to XX/XX/XX date NT code operated. When the manual return for the year of bankruptcy is processed this repayment should be taken into account.’
  • Prepare a letter to the taxpayer advising of the amount of repayment sent to the Official Receiver and that this repayment should be declared on the tax return they will complete for the year of bankruptcy
  • Prepare letter to Official Receiver advising them of the repayment to be made to them

Reverse the Informal Standovers and inform EIS E / EIS N of the debts that now need to be remitted and included in HMRC’s claim in the BY

16. If there are any earlier debts from NPS, these should have already been dealt with through NPS (Revenue Loss Type 2 applied or written off if sent to ETMP). If your case has debts which need to be transferred to SA, you must ensure that the tax repayment due for the period when NT should have been operated is dealt with as shown below, before transferring the NPS debts to SA

  • Make an SA note ‘the FSC of £…… is because NT code was operated late. It cannot be set against any earlier year debts whether SA or PAYE and must be repaid to the Official Receiver in full.’

If there are existing SA debts prior to the FSC being placed on SA, you must follow steps 14 - 15 above which will enable you to transfer the FSC to OAS. The FSC may have been allocated against any existing SA debts. If that is the case, the FSC may well be in parts. You will have to arrange using steps 14 and 15 above to allocate the FSC to OAS

  • Use Function CREATE SUNDRY CHARGE to transfer earlier years debts from NPS if required

New post-bankruptcy SA record

17. After updating the pre-bankruptcy SA record with the Capacitor details you must wait overnight and check TBS. The TBS record must show that SA is dormant for you to continue with the steps below. If the TBS record does not show the SA record as dormant, you cannot continue to set up a post-bankruptcy SA record. You must wait until it shows SA dormant

Note: Not all cases will need a post-bankruptcy SA record. This record will only be for cases that continue to fulfil SA criteria in that they continue in the trade / business / partnership they were involved in prior to bankruptcy or they commence a new business/trade/partnership. If form CWF1 / SA1 / SA400 is received following bankruptcy for a new source of income, these forms should be sent to CAAT in accordance with SAM100000 onwards to be dealt with. They should be identified to them as post-bankruptcy forms CWF1. They should be set up using function SET UP POST BY / VA INDIVIDUAL. If S/E notification is being dealt with by the BY Teams in East Kilbride, the Post BY record can be created there as NIRS access is available

Note: For deceased cases, on receipt of a reply to letter OCADBY09 or OCADBY12,consider if a post BY record is required and where one is needed

  • Write to the personal representative/capacitor of the deceased to advise that a post BY record is required and follow the remaining steps in this guidance to review and update the record

If the individual was a director at the date of bankruptcy, he/she may still require a post bankruptcy record to be set up if the directorship is continuing. Not all directors need to be in SA; you must check the latest information on the SA Criteria Tool. You may have been informed that the directorship ceased, in which case, if there is no other SA criteria, no post bankruptcy record will be needed. However, if there is nothing to indicate that the directorship has ceased on bankruptcy then a post bankruptcy record is needed after confirming this with the latest information on the SA Criteria Tool

18. Once the pre-bankruptcy SA record is shown on TBS as dormant, use function SET UP POST BY / VA INDIVIDUAL to create a new SA record for the taxpayer. You must use this function to set up a post-bankruptcy SA record

Note: The SA record should be set up in the appropriate OUID. For further information, refer to the list of (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Note: Post VA records are created by the BY Teams in East Kilbride

Once the UTR from the pre-bankruptcy record has been input, this function will

  • Automatically populate the post-bankruptcy record with data from the pre-bankruptcy record, including
  • Name, address and date of birth
  • NINO
  • Return details and signals

Note: The data and values on the screen can be amended at this stage

  • Automatically set the SA Entry / Exit Letter Inhibited signal to ‘Y’
  • Automatically store the UTR of the original record on the on-going SA record, and store the UTR of the on-going SA record on the original SA record

19. Use function SET UP POST BY / VA INDIVIDUAL to

  • Set the ‘Manual Return’ signal to ‘Y’ for the year of bankruptcy. For example, if bankrupt in 2011-12 set the signal for that year and make the following SA Note
  • ‘Manual Return signal set. Return for XX-XX not required as cleared on pre-BY record. Remove signal after 5 April XX, the end of the BY year’
  • However if today’s date falls after the automatic selection process, there is no need to set the ‘Manual Return’ signal as you will not need to issue a return from this record for the year of bankruptcy (the return is to be issued from the old bankruptcy record rather than new record)
  • Enter Communications Address details, where necessary, before using function MAINTAIN RETURN PROFILE
  • Enter new capacitor’s details, where necessary, before using function MAINTAIN RETURN PROFILE (the new capacitor will not be the Official Receiver as this is a post-bankruptcy record). Note: The ‘Abroad’ indicator cannot be set if a postcode is present
  • Use the ‘Return Profile’ button to access function MAINTAIN RETURN PROFILE to record the supplementary pages to be issued with the basic return

Note: The information will flow overnight to the Citizen Identification (CID) Framework. If there is a current PAYE main source record a link will be created automatically between the SA record and the PAYE record

  • Issue OCA letter OCABY09 (or OCABY12 where Voluntary arrangement, a Trust deed or Sequestration applies)

20. Where the source of income received is income from property

  • Enter a free format note in function AMEND TAXPAYER SIGNALS

21. If an agent was previously acting according to the pre-bankruptcy record, a new 64-8 is not required for this agent to be set up on the post-bankruptcy record. You cannot assume that following bankruptcy the agent no longer acts so you must use the same agent details on the post-bankruptcy record; unless you have been informed by either the taxpayer or the agent that they are no longer acting

22. Where there is a new agent acting and a new 64-8 has been received send to CAAT in accordance with SAM100200 for them to process

23. Where the individual taxpayer continues to have trading profits including profit from a profession or vocation. (Note: This excludes a partnership trade source, which must be set up on the partnership record)

  • Use function SET UP TRADE, once for each trading source you want to set up. If the taxpayer has more than one trade / partner source, set up the main source first. Alternatively, where the SA record is not linked to PAYE, you can access function MAINTAIN SOURCES to nominate the main source
  • If the source is within the construction industry
  • Use function MAINTAIN COMPLIANCE SIGNALS to enter on the SA record the nature of the taxpayer’s involvement in the construction industry

24. Where the taxpayer continues to be a partner

  • Use function SET UP PARTNER, once for each partner source you want to set up (this creates a link between the individual taxpayer record and the partnership records)
  • And where the SA record is not linked to PAYE
  • Use function MAINTAIN SOURCES to nominate the main source, if the taxpayer has more than one trade / partner source and you did not set up the main source first

Note: You should show the date of commencement as 6 April in the year following the year of bankruptcy and include the following note: Partnership UTR xxxxx xxxxx was live at date of bankruptcy. Start date of 06/04/XX used to prevent incorrect pre BY penalties on post BY record

Where the taxpayer commences a new business/partner in a partnership post-bankruptcy, form CWF1 / SA400 should be completed and dealt with by CAAT in accordance with SAM100130

If SA registration is received through form CWF1 / SA1 / SA401 / SA402 and is for a period commencing well after the date of bankruptcy the record should be set up using SET UP POST BY INDIVIDUAL. This will ensure the NINO, UTR will be transferred across from the pre-bankruptcy record to the post-bankruptcy record correctly

25. Where the taxpayer is responsible for operating Class 1 NIC on a DC source of PAYE income, ask the Employers Section to

  • Open a Direct Collection (Employee Only NIC) scheme
  • Issue the information pack as detailed in the PAYE Manual

Note: For further information, see guidance at PAYE20091

26. Where the taxpayer has indicated the requirement for special output, set the relevant signal (Audio, Braille or Large print). For Welsh Language cases only, contact HMRC Welsh Contact Centre, Ty Moelwyn, Porthmadog, Gwynedd, LL49 9AB or WAM box 906

Note: Do not create payments on account for the year of bankruptcy on the new SA record. Any payments on account due for the year of bankruptcy exist on the old SA record. Adjustment to the payments on account for the year of bankruptcy (old SA record) and any payments on account due for the following year (new SA record) will be sorted out on receipt of the return for the year of bankruptcy