Income tax (general)

September 2006

77.19 Types of taxable income

Taxable income is divided into the following headings:

  • Trade profits (trading income and income from a profession or vocation.)
  • Property income.
  • Savings and investment income.
  • Miscellaneous income.
  • Earnings and pension income (income from employment, pension and taxable social security benefits.)

The tax year runs from 6 April to 5 April of the following year, so the tax year from 6 April 2006 to 05 April 2007 is known as 2006/07. The method of calculating the income and the tax rate varies according to the type of income. Certain payments and allowances (such as the personal allowance) are deducted from taxable income before the tax due is calculated.

Tax is collected from most individuals at the source of income:

  • Tax is deducted at source from earnings and pension income through the pay as you earn scheme (PAYE) - see Part 3.
  • Tax on bank and building society interest is deducted at source at the rate of 20%. If an individual is not liable to pay any tax on their income, he/she may certify to this effect in order to receive the interest in full without tax being deducted. Higher rate taxpayers are then required to pay an extra 20%.
  • UK dividends carry a tax credit of 1/9th (thus a dividend of £90 carries a tax credit of £10, representing a 10% tax.)Dividend tax credits are not repayable to non-taxpayers. Higher rate taxpayers are then required to pay an extra 22.5%.

77.20 Residence, ordinary residence and domicile

Residence is determined by physical presence in the UK. To be regarded as resident in the UK a person must normally be physically present in the UK for some time in the tax year. If an individual is resident in the UK year after year, that individual is treated as being ordinarily resident. An individual is always regarded as resident in a particular tax year if they are present in the UK for 183 days or more in that tax year, irregardless of whether they are ordinarily resident in the UK.

Domicile is a general legal concept. It is different from both nationality and residence, and an individual can only have one domicile at any one point in time. An individual’s domicile is usually the country in which he/she has his/her permanent home. A domicile of origin is acquired at birth and under UK law this is the father’s domicile for legitimate children and the mother’s domicile for illegitimate children. A wife’s domicile is determined independently of her husband’s. The domicile of origin may be abandoned by an individual on reaching the age of 16 and a domicile of choice may then be acquired. This requires positive action on the part of the individual such as obtaining citizenship, changing residence or making a new will under the laws of the new country.

77.21 Overseas income

Income tax is charged on the world income of UK residents, subject to certain deductions for earnings abroad and for individuals who are not ordinarily resident or domiciled in the UK (see paragraph 77.20.) Individuals who are UK domiciled or ordinarily resident in the UK are normally charged on the full amount of foreign income arising abroad, whether or not it is brought into the UK.

Someone resident in the UK who is not UK domiciled, or not ordinarily resident in the UK is charged only as and when income is brought into the UK (on the remittance basis.) Non-residents are liable to income tax only on income that arises in the UK.

If an individual has income or gains from a source in one country and is resident in another, the individual may be liable to pay tax in both countries under their tax laws. To relieve ‘double taxation’ in this situation HMRC has negotiated double taxation agreements with a large number of countries whereby the individual may be able to claim exemption or partial relief from UK tax on certain types of income. The precise conditions of exemption and relief vary from agreement to agreement.

77.22 Information available from HMRC

(amended January 2014)

HMRC has a strict legal duty to maintain the confidentiality of the information it holds about its customers. This is based on a long established and fundamental principle (supported by case law) that information provided by HMRC is treated as being strictly confidential and is not disclosed to third parties without the individual's consent. The official receiver must request that all bankrupts sign the tax and national insurance disclosure form [note 1] and where it is necessary for the official receiver to make an enquiry of HMRC, a copy of the disclosure form (in Word or pdf format) should be sent to the HMRC e-mail account Any related correspondence should be sent separately in the post. If the bankrupt will not sign the disclosure form, and the official receiver is of the opinion that information held by HMRC is necessary in the course of his/her inquiry into the bankrupt's dealings and property, the official receiver may consider making an application to the court for a court order [note 2] for the production of documents by HMRC.

77.22A Information available when HMRC is the petitioning creditor – bankruptcy only (amended September 2012)

On the making of a bankruptcy order where HMRC is the petitioning creditor in respect of income tax or national insurance contributions, an information package (including a copy of the petition) will be supplied to the official receiver by HMRC automatically.  This will be supplied at the earliest opportunity within 4 calendar days of the bankruptcy order being made.  There is no similar agreement in place with HMRC in relation to company cases.

The initial package of information will be supplied by HMRC, Enforcement and Insolvency Service, Durrington Bridge House, Worthing, BN12 4SE and will contain the following information where known:

  • Case worker details
  • Trader’s full name
  • Trading name and address
  • Personal address
  • Date of birth
  • National Insurance number
  • Bank/Building Society details
  • Any known assets in the last three years
  • VAT registration, if appropriate

If the official receiver exceptionally needs a copy of the petition before the 4 calendar days are up, he/she should contact Petitions & Transfers Section, which is part of the Centralised Activities Directorate (CAD), and based in Croydon, who will make the request on the official receiver’s behalf.

77.22B Information available when HMRC is a supporting creditor – bankruptcy only

(amended January 2014)

Where HMRC is a supporting creditor in a bankruptcy petition, an information package will be supplied to the official receiver on his/her written request which should be made to HMRC Enforcement and Insolvency Service, DX 90957, Worthing 3.  Such a request should not be made as a matter of routine in every case, but only in cases where it is necessary to do so, e.g. in order to locate the bankrupt.  If information beyond that contained in the information package is required, the official receiver should send such a request together with the bankrupt's signed disclosure form or a court order under section 369 to the HMRC Enforcement office (see paragraph 77.22). The request for further information should be sent by post and if not previously sent the signed disclosure form should be sent separately (in either a Word or pdf format) to the HMRC email account

77.22C Information available when HMRC is not the petitioning or supporting creditor

(amended January 2014)

Where HMRC is not the petitioning or supporting creditor in respect of income tax or national insurance contributions, if information is required about the taxpayers affairs it should be sought from the local tax office and accompanied by a signed disclosure form (TNIDIS), see paragraph 77.22) or pursuant to a court order under section 369. The request for further information should be sent by post and if not previously sent the signed disclosure form (in Word or pdf format) should be sent separately to the HMRC email account See also paragraph 78.35 for the initial action to be taken by the official receiver in respect of a VAT registered insolvent.

77.23 Nil tax codes

(amended January 2014)

HMRC issues a claim in the bankruptcy proceedings to cover the income tax due for the whole of the tax year in which the bankruptcy order is made, less the amount of tax paid and deducted up to the date of the bankruptcy order. A nil tax (NT) code is applied to the bankrupt for the remainder of the tax year post the bankruptcy date with the effect that he/she does not pay income tax for the rest of that tax year, and thus is in receipt of extra income.

If the bankrupt changes employer during the course of the tax year in which he/she is made bankrupt (which HMRC deems to be change in source of income), a new tax code will be issued, and the bankrupt will be required to pay tax on his/her earnings from the date of the change of employer. If the bankrupt has more than one source of income at the date of the bankruptcy order, the NT code will apply to all sources of income.

This extra income may be claimed by the official receiver under an Income Payments Agreement (IPA) or Income Payments Order (IPO).  When a nil tax IPA or IPO is obtained, the official receiver must send notification to HMRC, PO Box 1000, Newcastle upon Tyne, NE98 1WY [note 3] so that notification can be sent to the official receiver's collection agents when the NT code is notified to the bankrupt's employer. A copy of the bankrupt’s tax disclosure form [note 1] (in Word or pdf format) should be sent separately to the HMRC e-mail account

It can take some time to implement the new tax code, and a refund of the tax paid between the bankruptcy order and the NT code being issued is payable in these circumstances. HMRC will automatically offer the refund to the official receiver or other trustee appointed. The official receiver must respond to the offer and forward a copy of the tax disclosure form [note 1] in order to claim the refund, see paragraph 77.78.

For more information on NT IPAs and IPOs see Chapter 31.7 Part 3 and the Case Help Manual chapters Income Payments Agreements and Income Payments Orders.


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