Tax Refunds

Issued Novenber 2005

1. Introduction

HM Revenue & Customs (HMRC) is the new department responsible for the business of the former Inland Revenue and HM Customs and Excise and continues to deal with the taxation of income for UK residents, both individuals and companies, whether the income is earned at home or abroad. 

For the individual, income tax is charged on different types of earnings, which fall into various different categories known as schedules, with the methods for measuring the income and assessing any tax liability depending on how the income is classified. Certain payments and allowances such as the personal allowance are deducted from income before the tax due is calculated. The tax year runs from 6 April of one year to 5 April of the following year so that, for example, the tax year 2004/05 ran from 6 April 2004 to 5 April 2005.

Partnerships are governed by a set of rules which mean that the partners are liable for their own tax debts and HMRC cannot look to the partnership or the other partners if one of the partners fails to pay their tax. The partners are jointly liable to pay the debts of the firm in respect of Pay As You Earn (PAYE) deductions for employees’ wages.

Companies can be liable for corporation tax, which is charged on the profits of companies that are UK resident and certain unincorporated bodies (but not partnerships). The term "profits" extends to cover almost all sources of income which the company receives, including capital gains which may arise when assets are disposed of. The profits are calculated according to an accounting period, which is usually the same period for which the accounts are prepared.

 

2. Which tax office?

HMRC Enquiry/Call Centres will be the main contact for most individual taxpayers. They will handle any enquiries regarding PAYE codings, allowances, assessments and will provide forms and leaflets.

Local HMRC Compliance Offices deal with the examination of business accounts, corporation tax, PAYE audit and recovery work.

In debtor’s petition cases the bankrupt will be asked to provide details of the local HMRC office dealing with his/her tax affairs together, where possible, with the relevant tax reference number when completing the statement of affairs. In creditors petition cases the information will be detailed in the preliminary information questionnaire (PIQB).

 

3. Tax refunds - bankruptcy

Tax refunds may be payable to a bankrupt for periods both before and after the making of the bankruptcy order. Refunds due for tax years prior to the date of the bankruptcy order and for the tax year in which the bankruptcy order was made can be claimed using the bankrupt’s duly completed Income Tax and National Insurance disclosure authority form TNIDIS. Any refund in respect of tax years after the tax year in which the bankruptcy order was made may be claimed by means of an income payments agreement/income payments order (IPA/IPO) where the bankrupt remains undischarged. The IPA/IPO application should clearly state what is being claimed. It must also be borne in mind that an IPA can only be entered into prior to the discharge of the bankruptcy and therefore the bankrupt must agree to and the official receiver must accept the IPA prior to discharge. Where the bankrupt does not consent to the IPA or there is insufficient time to obtain an IPA prior to discharge the official receiver has the option of applying for an IPO, since an IPO may be made on an application instituted before the date of discharge (OROS Bulletin2/05).

 

4. Automatic transmission of case information to HMRC (amended September 2012)

In an agreement with HMRC case information is now automatically transmitted to them from data extracted from ISCIS.  As new insolvency order data is sent automatically, the NORD1 form, informing creditors of which office is dealing with a new case, should not be sent to Insolvency Claims Handling Unit (ICHU).  Data is collected from ISCIS and sent under the following headings: 

1) New bankruptcy cases.

2) New company cases.

3) Stay of proceedings of bankruptcy cases.

4) Expired stay of proceedings of bankruptcy cases.

5) Stay of proceedings of company cases.

6) Expired stay of proceedings of company cases.

7) Stay of advertisement of bankruptcy cases.

8) Expired stay of advertisement of bankruptcy cases.

9) Stay of advertisement of company cases.

10) Expired stay of advertisement of company cases.

11) Annulled bankruptcy cases.

12) Rescinded company cases.

The data is collected 4 days after input onto ISCIS and transmitted electronically on a Monday, Tuesday and Friday of each week.

It has been further agreed that the electronic notification of the bankruptcy order will cause the local tax office dealing with the bankrupt taxpayer’s affairs not only to become aware of the bankruptcy proceedings but also, where appropriate, to identify for payment to the official receiver, or trustee, any refund of tax. In addition, where appropriate, the nil tax (NT) tax code will be set at that time.

 

5. Tax and National Insurance Disclosure Authority

In every case the bankrupt is to be asked to complete an Income Tax and National Insurance disclosure authority form (TNIDIS). This form, amongst other things, authorises the payment to the official receiver or other trustee of the bankruptcy estate of any income tax refunds due for any year up to and including the tax year in which the bankruptcy order was made.

The completed form TNIDIS should be retained on the file until required (see paragraphs vi and vii below).

 

6. Refunds of tax for years covered by form TNIDIS

(amended January 2014)

When a refund of income tax becomes payable, it will be offered by HMRC to the official receiver, or trustee, ‘automatically’. To receive the refund, it will be necessary for the official receiver to respond to the offer and request the payment of the tax refund. At that time a copy of the form TNIDIS should be submitted in support of the request

HMRC have set up an e-mail account for electronic receipt of signed TNIDIS forms. The forms (in Word or pdf format) should be sent to the following e-mail address; :

Tnidis.ptopsbankruptcy@hmrc.gsi.gov.uk  

No other attachments should be sent with the TNIDIS forms. An automated reply from the HMRC inbox will be generated confirming receipt and further stating that the TNIDIS will be processed within 5 working days. The letter requesting payment should be sent separately by post

Where the official receiver becomes aware that a tax refund is due but a cheque has already been issued to the bankrupt which has not yet been cashed, HMRC should be asked to stop payment of the cheque and issue another made payable to the official receiver. If the bankrupt has already cashed the cheque, he/she should be asked in writing to pay that sum to the official receiver immediately.

 

7.  ”NT” tax code Income Payment Orders and Income Payment Agreements (Amended December 2012)

When a bankruptcy order is made against an individual who is subject to PAYE, HMRC applies a “nil tax” code to that person for the remainder of the tax year in which they were declared bankrupt and can then claim in the bankruptcy for the amount of tax which would have been collected (plus any other money owed for previous years). However, if the debtor changes his/her job during the tax year in which the bankruptcy order was made the nil tax code ceases to apply from the date he/she leaves the job held at the date of the bankruptcy order.

Where the nil tax code is expected to be applied before the end of the tax year, the additional income arising as a result of the application of the NT coding, can be included when calculating the amount of the bankrupt’s surplus income from which contributions can be collected under an IPA.

HMRC have confirmed that an NT tax coding will have no impact on a bankrupt’s claim for working tax credits. These tax credits are assessed based on the level of the bankrupt’s gross income which would be unaffected by the application of an NT coding and will prevent monies which the state intended to provide to meet the bankrupt’s reasonable domestic needs being realised for the benefit of creditors (see Technical Manual Chapter 31.7 Part 3, paragraph 31.7.59 to 31.7.70).

In practice, it can take time to implement the new tax code and when orders are made in the latter part of the tax year, the money is often paid as a refund after the year end and thus is covered by the completion of the form TNIDIS.

NB The tax refund must not be claimed as after-acquired property.

For further information see Case Help Manual parts: Income Payments Orders and Income Payment Agreements.

 

8. What if the bankrupt is discharged?

Where a bankrupt has been discharged, the official receiver can only realise any sum due as a tax refund if it is covered by a signed form TNIDIS or by means of an IPA/IPO obtained before discharge. If not, the payment should go to the former bankrupt, unless there is a trustee in office (see paragraph ix). This is because the official receiver cannot follow the usual method of obtaining an IPA/IPO, as they are only available to be made against undischarged bankrupts. It is possible however, to ask that a discharged bankrupt sign a form TNIDIS to enable the monies to be claimed by the estate, if the official receiver is of the opinion that the tax refund might fall within a period covered by the TNIDIS.

Where the bankrupt is discharged, a form TNIDIS has not been completed and the official receiver has received a payment from HMRC, the examiner should be informed and with their approval, the cheque can then be returned to HMRC.

Where the official receiver simply receives notice of an impending payment enquiries should be made to establish what period the repayment covers and the matter referred to the examiner. If there is an insolvency practitioner in office HMRC should be asked to deal with the insolvency practitioner direct. The insolvency practitioner should be informed of the notice of refund.

 

9. What happens if there is an Insolvency Practitioner appointed as trustee?

The insolvency practitioner should be advised of any notice of tax repayment or, where a cheque has been received without prior notice, it should be forwarded to the insolvency practitioner. If known, the official receiver should advise the trustee whether the repayment relates to a period covered by form TNIDIS. If the repayment is for a later period, the trustee should be advised that the official receiver has taken no action in respect of claiming the funds and that the matter wil require his attention as a result. In the case of both a repayment notice or payment, HMRC should be notified that the matter has been passed to the trustee.

 

10. Crown set off

It should be noted that the Crown has a general right of set off in respect of all claims due to or from any Government Department. In most cases, however, a repayment can be accepted without the need for further enquiry, as HMRC will usually check whether there is a need to set off the refund. In the event of any uncertainty the matter should be referred to the examiner.

 

11. Tax refunds – companies

If the directors of a company state that a tax refund may be due to the company, details of the tax office and any references should be obtained at the interview. The official receiver should then contact the local HMRC Compliance Office as soon as possible so that HMRC can note the interest in any repayment.

However, the complex area of company taxation and the variety of different tax debts for which a company may be liable may mean that the official receiver will experience difficulty in obtaining any tax refund. The advice of an accountant or other tax specialist may be needed to clarify the situation. Take no action in this regard without the prior approval of the examiner.

If HMRC sends notice that a refund is due, pass it to the examiner who can advise whether it can be claimed.

 

Notes

Pending an IPO hearing, where a cheque has been received, it should be forwarded to OR Banking to be placed on the estate suspense account. The bankrupt should be advised that the official receiver has taken this action and that an IPO will be sought. This will serve to protect those funds prior to any IPO hearing and if the official receiver is unsuccessful in obtaining an IPO, a cheque can then be requested to be forwarded to the bankrupt.

Where can I find out more?

Insolvency Act 1986

Sections 310 and 310A – Income payments orders and Income payments agreement

Insolvency Rules 1986

Rule 6.189 - 6.193. – Income Payments Orders, Income Payments Agreements

OROS Bulletin   2 of 2005 – paragraph 11 –IPAs and IPOs 

                       3 of 2005 – paragraph 14 – IPAs and tax credits 

Technical Manual

Chapter 31.5, Part 6 – Other Assets

Chapter 31.8 – Realisation of After-acquired Property

Chapter 77 – Taxation (excluding VAT)

Case Help Manual

After-acquired Property

Discharge from Bankruptcy

Income Payments Agreements 

Income Payments Orders 

Notices

M16-03 – Automatic Transmission of Case Information to the Inland Revenue

T20-03 – Obtaining Nil Tax Code Income Payments Orders

T4-05 – Collection of Tax Refunds: amended

T6-05 – NT Tax Codes: revised

Forms to be used

NTI  – Notice to Tax Inspector

TNIDIS - Tax and NI Disclosure Authority

IRNTC – Letter re nil tax coding

 

Tax Refunds Flowchart  

 

Procedure  

LOIS screen references are given in brackets e.g. (DO 73)

Companies

1 If the directors of a company believe that a tax refund may be due to the company, details of the tax office and any references should be obtained at the interview. Where instructed the official receiver should then contact the tax office as soon as possible so that the HMRC can note the interest in any repayment. Any matters raised by HMRC should be passed to examiner for advice.

Bankruptcies

1 During the initial contact process bankrupt is sent/given a Tax and National Insurance Disclosure Authority form (form TNIDIS) to complete and return, with full details of tax office and tax reference. The completed TNIDIS form should be saved to the file.  

2 In an agreement with HMRC notification of a bankruptcy order is now transmitted automatically via ISCIS. This means that HMRC are aware of the bankruptcy proceedings and can identify any refund of tax payments at an early stage.

3 If a cheque has already been issued to the bankrupt but not yet cashed and on the instructions from the examiner, send a letter to the bankrupt asking him/her not to present the cheque for payment but deliver it to the official receiver/trustee. Alternatively, in a case where the bankrupt is non-surrender or uncooperative, the examiner may instruct to ask HMRC to stop payment of that cheque and request the issue of another cheque made payable to the official receiver.

4 If a cheque has already been sent to the bankrupt and cashed, send a letter to the bankrupt asking him/her to repay the relevant sum to the official receiver immediately.

5 If a cheque or notice of tax refund is received, the year for which the tax refund is due will need to be identified, to see whether it is covered by the completed TNIDIS. In the event of uncertainty, pass the papers to the examiner for guidance.

6 In all cases with a trustee other than the official receiver, whether the bankrupt has been discharged or not, any notice of refund or monies received by the official receiver should be passed to the trustee and HMRC advised of this.

7 Since case details are forwarded electronically to HMRC any refund of tax will be offered automatically to the official receiver or trustee. Payment will need to be requested by post and a copy of form TNIDIS submitted separately by e-mail to the HMRC e-mail account Tnidis.ptopsbankruptcy@hmrc.gsi.gov.uk. ISCIS should be updated accordingly.

8 Where a bankrupt is in PAYE employment a Nil Tax (NT) code will be applied by HMRC for the remainder of the tax year in which bankruptcy occurred. 

9 Where appropriate, instructions will be given to obtain an IPA (or IPO) on NT tax code cases agreed by the examiner during the initial contact process.  

10 Once IPA/O obtained issue form IRNTC to local tax office and send a copy of form TNIDIS separately to Tnidis.ptopsbankruptcy@hmrc.gsi.gov.uk..   

11 Any payment or notice of payment received from HMRC should be referred to the examiner, even if the bankrupt is discharged as the period concerned may be prior to discharge.