Bankrupts' Tax Code

[huw]

Reading about the coming wave of personal defaults and the likely costs to the taxpayer, it struck me that we could have a special tax code for those who've defaulted on significant debt. The proceeds to go into the FSCS fund, reducing the moral hazard implicit in the current levy system, and/or to partially refund the taxpayer for bailout costs.

People prepared to carry a lot of debt presumably consider they have excess income (for debt service) which is freed up following debt-write-off, so arguably they shouldn't suffer excessively. From a moral hazard POV the possibility of long-term (but not catastrophic) consequences might make borrowers more prudent in future.

I guess something similar might be done for any private corporations that have needed taxpayer bailouts.

Just a thought ...

[mikeymadman]

Bankrupts do get a special tax code and you don't want to know what it is...

It's NT for the period from the date of the bankruptcy order until 5th April next. They are supposed to pay that money to the Official Receiver. Things being the way they are I bet there's a bunch of people that don't...

[gasket37]

Reading about the coming wave of personal defaults and the likely costs to the taxpayer, it struck me that we could have a special tax code for those who've defaulted on significant debt. The proceeds to go into the FSCS fund, reducing the moral hazard implicit in the current levy system, and/or to partially refund the taxpayer for bailout costs.

People prepared to carry a lot of debt presumably consider they have excess income (for debt service) which is freed up following debt-write-off, so arguably they shouldn't suffer excessively. From a moral hazard POV the possibility of long-term (but not catastrophic) consequences might make borrowers more prudent in future.

I guess something similar might be done for any private corporations that have needed taxpayer bailouts.

Just a thought ...

they already do! after a bankruptcy order is made against an individual under PAYE, HMRC applies a “nil tax†code to that person for the remainder of the tax year in which they were declared.

[InternationalRockSuperstar]

Reading about the coming wave of personal defaults and the likely costs to the taxpayer, it struck me that we could have a special tax code for those who've defaulted on significant debt. The proceeds to go into the FSCS fund, reducing the moral hazard implicit in the current levy system, and/or to partially refund the taxpayer for bailout costs.

People prepared to carry a lot of debt presumably consider they have excess income (for debt service) which is freed up following debt-write-off, so arguably they shouldn't suffer excessively. From a moral hazard POV the possibility of long-term (but not catastrophic) consequences might make borrowers more prudent in future.

I guess something similar might be done for any private corporations that have needed taxpayer bailouts.

Just a thought ...

better to just let the banks fail, that way it doesn't cost the tax-payer anything.

[matroskin]

better to just let the banks fail, that way it doesn't cost the tax-payer anything.

Well, "let the banks fail" is sooooo 2008, dear IRS

On a more serious note - it was certainly true for 2008 but we are in Q3 2009 and HMRC accounts are now with RBS and Citi so failure of either one or indeed both would cost UK taxpayer dearly.

[InternationalRockSuperstar]

Well, "let the banks fail" is sooooo 2008, dear IRS

the free market said "no" to banking back in 1929. the state has been propping up the insolvent ******* ever since.

so failure of either one or indeed both would cost UK taxpayer dearly.

bank failure wouldn't cost the tax-payer anything; it's propping them up that's costing trillions.

[matroskin]

bank failure wouldn't cost the tax-payer anything; it's propping them up that's costing trillions.

You better check the order of payouts to creditors in case of bank bankruptcy. HMRC, as a business account holder, would probably get next to nothing on its £billions account balance. Though the loss would be not in £trillions, I agree

[InternationalRockSuperstar]

bank failure wouldn't cost the tax-payer anything; it's propping them up that's costing trillions.

You better check the order of payouts to creditors in case of bank bankruptcy. HMRC, as a business account holder, would probably get next to nothing on its £billions account balance. Though the loss would be not in £trillions, I agree

sorry, you seem to be confusing HMRC with the tax-payer.

[SNACR]

They don't pay tax as the receiver is responsible for it.

If they have surplus income, now they no longer have debts to service, they have to pay it to the receiver. This, obviously, only works with PAYE salaried as seif-employed plumbers, for example, won't work to earn more than they can keep or in reality go cash-in-hand.

I read some kind of report on it a while ago and it sort of admitted that they turn a blind-eye to cash-in-hand work as with typical government cynicism they'd rather have people do that than go on benefits they then have to pay. I wonder how many though after getting a taste of lucrative cash-in-hand work ever truly give it up.

It also said that the surplus income payments that salaried people are supposed to keep to over a couple of years aren't usually kept up with. One of the reasons cited was that people are only allowed to have a cheap £1000 car if it's essential for their work, The, what was going to be, surplus income gets used up on car repairs before it reaches the receiver/trustee.

[huw]

Bankrupts do get a special tax code and you don't want to know what it is...

It's NT for the period from the date of the bankruptcy order until 5th April next. They are supposed to pay that money to the Official Receiver. Things being the way they are I bet there's a bunch of people that don't...

Didn't know that.

But I was thinking of a long-term surcharge, a kind of fiscal stigma if you like, to replace the social stigma that's now disappeared.

[huw]

better to just let the banks fail, that way it doesn't cost the tax-payer anything.

True, though it's a bit late now.

There's still deposit insurance fallout from a failed bank, it seems reasonable that the defaulting debtors should help pay that back (whether the scheme was funded through a bank levy, or by the taxpayer).

You'll probably tell me there should be no deposit insurance either ... yet we are where we are.

[SNACR]

Didn't know that.

But I was thinking of a long-term surcharge, a kind of fiscal stigma if you like, to replace the social stigma that's now disappeared.

Er, isn't that called an IVA?

[US Citizen]

better to just let the banks fail, that way it doesn't cost the tax-payer anything.

Please remind me again. Who is the majority stake/shareholder in most of the UK banks. Me and You. Johnny Taxpayer.

[huw]

Er, isn't that called an IVA?

An IVA is an alternative to bankruptcy, isn't it, rather than the thing itself?

[matroskin]

sorry, you seem to be confusing HMRC with the tax-payer.

Not quite.

I spell it slowly for you:

Consider this purely hypothetical scenario

HMRC collects taxes, puts monies into its accounts @RBS and Citi, then one or both banks are allowed to go bankrupt.

Appointed receiver assesses banks assets vs liabilities and payments are made from what's left after fire sale of bank assets.

HMRC won't be 1st in line, receives only what's left after paying others and is short to the tune of £billions, maybe £dozens of billions. Govt introduces new taxes to maintain spending on benefits/defence/security.

Uk taxpayer is screwed again.

I hope you get it now.