Applying Kaye To Partial Year Liability

Image: Amanda Marie/gdtography/Unsplash
Image: Amanda Marie/gdtography/Unsplash

Q: Can you please explain how the Kaye v South Oxfordshire decision affects liability for CT or NDR if the insolvency event happens part way through the year?

A: If you treat liability for NNDR or Council Tax as one question, and the amount of that liability as another, you may find it easier to digest.

The starting point is that you determine who is liable on a day to day basis, but the effect of Kaye is that for the purpose of insolvency once a person (individual or company) is liable on 1st April in a billing year the remainder of that year is to be regarded as a contingent liability even where there has been no default so as to trigger loss of the right to pay by instalments. The contingent aspect is predicated on the fact that the liability can end before 31 March, but if it in fact does not end it will be picked up in an insolvency of whatever type.

The amount of the liability is what is altered by the 2008 Regulations (or such other relief as may be applicable to a particular hereditament).

By way of illustration of this:

  • Say a Company is the owner of a Hereditament on 1 April, pays its instalments through to 1 June but on 23 June it is the subject of a winding-up order. The ownership is based on a lease. Provided the lease isn’t disclaimed before 31 March the following year, liability would stay with the Company. However, the effect of the winding-up order is to trigger the exemption, meaning that the amount of that liability would be Nil for the period 23 June to 31 March. Whether you prove for the “whole year” or just to 22 June, the amount of the debt is unchanged. It is mere phraseology in this case.

Contrast that with:

  • An individual is the resident of a Dwelling on 1 April, pays his instalments through to 1 June but on 23 June is adjudged bankrupt. Provided that he remains resident through to 31 March the following year, liability would stay with him. Further, as there is no exemption from Council Tax triggered by the bankruptcy of a resident of a Dwelling, the amount would be the full year’s Council Tax as billed on 1 April (and divided in April into the instalments). The effect of Kaye is seen in this case, as the July – March instalments would all be provable in the bankruptcy and fall to be treated as a bankruptcy debt, rather than being a post-bankruptcy liability.

They are the typical instances for a corporate and individual insolvency event.

CVAs and IVAs tend to see occupation continue, so they again wouldn’t necessarily see any change to liability or amount and the Kaye Judgment would kick in to capture the whole of the year. That again is the general rule only. You could equally have a scenario where, using the above dates, a Company enters a CVA on 23 June but then vacates the property and ends a lease on 1 December. Whilst you’d have proved for the whole year on or after 23 June, the event of vacating and ending the lease on 1 December would mean that the correct proof would be 1 April to 30 November, less any payments made.

There are a wide range of scenarios and its impossible to cover off every eventuality, but feel free to email any queries, and we’ll do our best to assist.

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Wigan WN3 6PR

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