Debt Questions

Hello,

Apologies if this has already been covered but I have had conflicting information about the exact tax position of a self-employed person after bankruptcy.

I am fortunate enough to be able to file for bankruptcy without making an appointment (Croydon)and am unsure whether it is best to do it before the end of this financial year or after the start of the next. I read somewhere that self-employed people do not pay tax for the tax year when the bankruptcy occurs, so does this mean it is better to go bankrupt next financial year or does it not make any difference? For information my income is currently very low and I am claiming housing benefit. I don't think I would have much, if any, surplus each month after paying for necessities.

Thanks for your help.

David

my husband is self employed and went br 6th april 05,we have been told that the bill for 04/05 would be in the br,we didn't know how much the bill would be til january this year he's been discharged and i took the bill up to the case clerk in january and was told she'd get it dealt with,well that was until last week when the reminder came through the door with interest on.my husband rang the tax office and the person he spoke to said they needed confirmation from the ors office so went back to see her and she said she'd phone them,as it should be included with the bankruptcy.
the debt is covered up til your br date anything after that is payable,but make sure they sort this as my husband is going round in circles

Hi, I have not had a bill for the last year when I went BR.

There are two issues with tax and income when deciding when to proceed. Let’s say that your net income was £1200 per month and that you were normally liable for £200 tax each month meaning that you actually had only £1000 to live on but your essential costs excluding any debts each month was also £1000. You would there’re in that scenario have no surplus and thereby avoid an IPA. Remember that if ones made even for just no tax or for 1 day it can run for 3 years as there are no distinction in law or different types of IPA. Once made they remain perhaps dormant but live for 3 years. people who have in the past gone ahead say in September and had no surplus though they were in the clear re IPA's but as soon as the NT tax code arrived their pay went up until the following April. As such an IPA was made until then which looked like it ended when the NT tax code did. Some months later that same person changed jobs doubling their income thinking they were free and clear of the bankruptcy and IPA. No so the inland revenue notify the relevant OR's offices, the ability to pay was reassessed and they had to then pay a huge IPA for the reaming 18 month of its potential life time. So not getting one at all if at all possible is critical.

If in the illustration above the person like you was to go ahead after 5.4.06 then very quickly they would not be liable for tax for 2006/7. As such they don’t have to pay that £200 per month tax liability but their costs remained the same so just because of the not tax provisions they suddenly have a surplus and will have to pay 100% of that surplus to the Or until the coding ends next April. So you wont see any benefit from the no tax bit and in fact if that then meant you had a surplus as a result you may end up with an IPA not just for the tax for the coming year but be monitored and risk it being dug up and resurrected at any point for the next 3 years. I hope this explains the choice you have to make.

If I was in your shoes and I could simply turn up I would go ahead tomorrow certainly before 5.4.06 remembering that the costs rise to proceed anyway on 1.4.06.

I hope this clarifies the issue for you.


Simon W