UK Insolvency Practitioner PAYE Obligations: Ensuring Compliance for Retained Staff

• Insolvency practitioners are responsible for PAYE and NICs on payments made to employees after their appointment, treating them as an expense of the insolvency.
• For retained employees, the existing PAYE scheme must be used, and Real-Time Information (RTI) submissions are mandatory.
• Distributions to non-retained employees or creditors are considered 'relevant payments' subject to tax and require a new PAYE scheme or an Employment Protection Act (EPA) scheme.
• HMRC must be contacted to set up and close EPA schemes, providing necessary details like National Insurance numbers for sole traders or partners.
• Insolvency practitioners must prevent new employers from incorrectly using the insolvent entity's PAYE reference, as HMRC cannot amend such filings.

Insolvency practitioners must ensure strict compliance with PAYE and National Insurance Contribution (NIC) obligations for both retained employees and distributions to former employees, including setting up specific Employment Protection Act (EPA) schemes for the latter, to avoid personal liability and ensure correct tax treatment during insolvency proceedings in the UK.

Upon appointment, an insolvency practitioner (IP) assumes critical duties concerning the insolvent entity's workforce. A primary decision involves determining whether to retain existing staff or proceed with redundancies. In a liquidation scenario, all employment automatically ceases, though certain individuals may be kept on to assist with the winding-up process.

For any employees retained post-appointment, the insolvency practitioner becomes directly accountable for their PAYE obligations. All Income Tax and National Insurance Contributions (NICs) due on salaries paid after the appointment date must be treated as an expense of the insolvency. These deductions must be accurately reported and remitted to HMRC by the employer responsible for the payments. Insolvency practitioners must ensure strict compliance with PAYE and National Insurance Contribution (NIC) obligations for both retained employees and distributions to former employees, including setting up specific Employment Protection Act (EPA) schemes for the latter, to avoid personal liability and ensure correct tax treatment during insolvency proceedings in the UK.

Should the insolvency practitioner opt to keep staff, it is imperative to continue utilizing the insolvent employer's existing PAYE scheme for all ongoing salary payments. This ensures continuity and proper tax treatment for current or retained employees. Real-Time Information (RTI) submissions are a mandatory component of this process, requiring employers to send data on tax, NICs, and other deductions to HMRC at the time earnings are paid.

If the employer was already registered for PAYE, the existing scheme should be utilized for RTI submissions. However, if the employer was not previously registered, the insolvency practitioner must ensure the employer is registered for PAYE to comply with these requirements. A critical aspect of insolvency practitioner PAYE obligations UK is preventing the incorrect use of the old PAYE reference by new employers, particularly in scenarios like pre-pack sales, as HMRC cannot rectify misfiled returns. Unpaid PAYE liabilities for employees made redundant at the insolvency date will form part of their claim within the insolvency proceedings.

Beyond retained employees, insolvency practitioners must also manage distributions to former employees, who often hold creditor status. These distributions, whether for services rendered pre- or post-appointment, are classified as 'relevant payments' under the Income Tax (PAYE) Regulations 2003. Consequently, they are subject to Income Tax and National Insurance Contributions deductions.

To facilitate these payments, a new PAYE scheme must be established specifically for distributions to creditors. This is distinct from the scheme used for retained employees. Furthermore, payments or distributions made to employees who were not retained after the insolvency date require processing through an Employment Protection Act (EPA) scheme. This guidance aligns with the principles outlined in the HMRC insolvency practitioner handbook regarding PAYE in liquidation guidance.

The process for setting up an Employment Protection Act scheme involves contacting HMRC's general enquiries line and explicitly requesting an EPA scheme. For sole traders or partnerships, the National Insurance number of the sole trader or partners will be required. HMRC will then provide specific instructions and details regarding the scheme's operation, ensuring compliance with Employment Protection Act scheme HMRC requirements.

Once an EPA scheme is no longer needed, the insolvency practitioner is responsible for its closure. Should additional payments, including dividends, become necessary after the final Full Payment Submission (FPS) has been made, an attempt should be made to submit a new FPS. If this is not possible, HMRC can be contacted to re-activate the scheme, though this option is generally limited to the current or previous tax year. Adherence to correct RTI submissions insolvency procedures is vital throughout these processes.

Insolvency practitioners must ensure strict compliance with PAYE and National Insurance Contribution (NIC) obligations for both retained employees and distributions to former employees, including setting up specific Employment Protection Act (EPA) schemes for the latter, to avoid personal liability and ensure correct tax treatment during insolvency proceedings in the UK.

Source: Original guidance via HMRC