Bankrupt trade VAT moves to online form; trustee must notify

Where a bankrupt keeps trading after the bankruptcy order, the bankrupt remains responsible for filing returns and paying tax for post-bankruptcy periodsGOV, and the trustee must tell the Enforcement and Insolvency Service that trading has continuedGOV. HMRC establishes the pre-bankruptcy tax position to lodge a claim, repay the office holder or operate Crown set-offGOV; further detail on Crown set-off is in section 13. Tax that an office holder must account for in respect of the period of office must not be included on the business's post-bankruptcy returnsGOV.

VAT for the office-holder period must now be accounted for by completing the online formGOV, which predominantly applies to deregistered business claims and payments of VAT. For this bankrupt-trade VAT the route is the online form with the prescribed steps belowGOV. To complete the form, the office holder completes the Insolvent business details section by selecting Yes to indicate the business has cancelled its VAT registration and No to indicate the date of cancellation is not knownGOV, screenshots the guidance in section 9.2.1 for upload to the Upload invoices sectionGOV, and references the reason as bankrupt continuing to tradeGOV.

The scope of the bankrupt's responsibility is wider than before: it covers filing returns and paying tax generallyGOV, not only submission and payment of VAT ReturnsGOV. The trustee's notification is now expressed as a must-tell duty with a pointer to section 1.4GOV. The pre-bankruptcy work is now expressed as establishing the pre-bankruptcy tax position, with the three outcomes of claim, repayment or Crown set-off set out as alternativesGOV.

VAT Notice 700/56 no longer repeats the section 9 procedureGOV. Section 9 of the Notice points to section 9 of the handbookGOV, and sections on taking control of goods or distraint, funded pension schemes and the Mid-sized Business temporary Customer Compliance Manager model point to sections 14, 22 and 26 of the handbook. Those Notice edits consolidate guidance without changing the underlying treatment: Crown set-off still sets pre-insolvency credits against pre-insolvency debtsGOV, with remaining VAT repayment credits offered to other departments and balances repaid to the estate, and partnership, dividend and returns sections are unchanged.

For an office holder with tax to account for, the practical effect is to use the VAT426 online route with the prescribed deregistration answers and uploadGOV, keep that tax off post-bankruptcy returns, and ensure the trustee has notified the Enforcement and Insolvency Service. For the bankrupt who continues to trade, post-bankruptcy filing and payment stay with the bankruptGOV.

Legal basis is section 9 of the Insolvency practitioner's handbook (sections 9.1, 9.2 and 9.2.1)GOV read with section 13 on Crown set-off and section 1.4 on contacting the Enforcement and Insolvency Service, and VAT Notice 700/56 as amended to signpost the handbook.