Is it possible to include a personal tax liability

[Christopher]

I'm seriously considering entering into an IVA after strugling with creditcard debt for the past 5 years. Is it possible to include a personal tax liability owed to the inland revenue?

[ianmillington]

Yes it is

Ian

[cr15py]

Yes, my IVA has an amount owed to HMRC as well. For info, they didn't vote at my meeting, although the debt was only £176.

[littleted]

Ian
Is it true that it has to be outstanding for a certain period of time? Mine for example is this Januarys, and somewhere along the line I'd heard that it has to be outstanding for longer?

[ray_a]

Yes as with others but they do have special rules and you have to be careful meeting present liabilities.

[ianmillington]

The rule for self-assessment tax is that the whole of the outstanding tax for the year in which your IVA is approved becomes a claim in the VA.

So, if your VA is approved, say, on 1 May 2008, the HMRC claim will be all years up to and including 2008/2009. As a result, if my maths is right you probably won't have any tax to pay until 31 January 2010!

However, HMRC will expect to see a monthly provision in your income and expenditure account for your post-VA Self-Assessment Tax. Because you won't actually have to pay that for 2008/09, they will expect the monthly provisions for months up to and including March 2009 to be paid into the VA along with the monthly contribution, to prevent the IVA giving you a tax-break. Years 2009/10 and so on need to be paid on their due dates.

A rather clumsy explanation but hope it helps. BTW this only applies to self assessment. PAYE and VAT - pre approval these are claims in the VA. Post-approval, these need to be paid on the normal due dates.

Ian

[Reviva UK]

Ian

you couldn't repeat that in english could you/

[MelanieGiles]

Quite simple! Client enters IVA on 30 April 2008. That is during tax year 2008/2009 which ends on 5 April 2009. All tax deemed payable for that year becomes claim in IVA - albeit a contingent one as the final figure cannot be confirmed until after said tax year has ended and tax returns have been submitted.

During said tax year, client needs to be providing for tax payable on profits (as all good self-employed people do!!), but this provision will probably need to be paid into the IVA directly rather than being saved up to pay a tax bill which is not payable - because it is already a claim in the IVA.

For all future tax years, tax is payable in normal manner - ie January and July, with balancing payment following January. This is a quirky bit of tax legislation, which is around because HMRC do not wish to split self-assessment years when there is an insolvency within that period.

Has the mud cleared for you???

[jpj]

Melanie.
Im self employed. In my case the HMRC insisted that I put £500 a month aside to pay my NEXT years tax bill during the first year of my IVA!. this money was listed as part of my income and expenditure.
As you have to pay in advance,on account, in january and july, unless you had the ability to set money aside during your first year,how would you have the cash for the second year?
Is it not true that you put money into the IVA for HMRC as a creditor BUT also put money aside to pay HMRC the following year?[V]

[ianmillington]

It actually works in reverse. To illustrate, on 31 January 2009 for example you have to pay:

Balancing payment for 2007/2008 (which you should now be able to quantify as 31/1/2009 is also the final deadline for your 2007/2008 return)
and a first payment on account for 2008/2009.

In the example Melanie and I quoted (approval 30/4/08 or 1/5/08)neither of those liabilitiies need to be paid as both Tax Years constitute claims in the IVA. The first payment that will need to be made is the first payment on account for 2009/2010, which doesn't need to be paid to HMRC until 31 January 2010. All things being equal, the money you are meant to be putting aside (and provided in your I&E) in months April 2009 to January 2010 should equate to that liability. The Tax for months to March 2009 (2008/09) you will never have to pay and so HMRC generally require those payments to go into the IVA (given that the tax claim covering those months also do).

A second example, approval on 5 April 2008, would not require any tax payment into the IVA as the 31 January payment would include the payment on account for 2008/2009, which starts on 6 April 2008.

I would say Paul that you are not alone in your confusion. Of all the concepts involved in a trading IVA, this is probably the most difficult one to clarify to clients.

JPJ - Does this explain your situation?

Ian

[littleted]

OK, I owe self assesment for the trading year ending March 2007, and am now obviously in trading year 2007/ 2008 up until the end of this month.
will that be included in my IVA?

[ianmillington]

Certainly the tax for 2007/2008 will indeed be included, littleted. If the VA is not approved until after 6 April 2008 (from our other correspondence I suggest this is likely) then 2008/2009 will also be included as we will have moved into a new tax tear.

Make sense?

ian

[littleted]

Yep, thanks Ian.
I have my meeting with my IP tomorrow from a company called Purnells, nervous as hell. Need everything plus a blood sample I think!!!
But yes it is unlikely that it would be approved before 6th April.
VAT owing from Jan 2008? Would this be included? Have spoken to them and sending a 'token' payment with the view to paying by the end of the month, but I'm not sure this will be possible?

[ianmillington]

Boy, and I think I'm asking my clients a lot when I ask for ID, but DNA?[:D]

Yes, the VAT will go in as well. However, unlike self-assessment the line is drawn and the Vat quarter is split on the date of approval. Any Vat on sales up to that date is a VA claim, VAT on any sales after that date must be paid on the due date.

Do not be nervous about the meeting with the IP. You are interviewing him or (having looked at Purnells entry on the DTI website) her just as much as the other way around. Have a full and frank discussion. I am sure the IP will adopt my philosophy of telling you what you need to know, which is the way you will find a solution.

Good luck for tomorrow - we will all be thinking of you.

Ian

[jpj]

Thanks Ian....Im more confused than ever now! te he.
I started my IVA on 12 june 2006
(paid 05to06 tax) didnt pay 06 to 07 (that was included in my IVA as a creditor debt) now just paid demand to cover first half of 07 to 08!
Does that sound correct? Only 1 year has been set against my IVA?

Many thanks JPJ