The HMRC guidance on Directors’ responsibilities states that a director must register for Self-Assessment and submit a personal Self-Assessment Tax return every year.
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HMRC also state under the Self Assessment rules that if you were a company director in the last year then you must submit a tax return. Unless it was for a non-profit organisation and you didn’t get any pay or benefits, for example, a company car.
This can be seen as quite misleading, and here is why:
What does the Law say?
A director doesn’t legally have to register for Self-Assessment. However, they must notify HMRC if they have a higher rate tax liability. This is highlighted in Section 7 of the Taxes Management Act 1970. If a director has been issued with a notice to file a return under section 8 of the Act then they must submit their Self-Assessment.
A director whose only income has been taxed under PAYE, or has no taxable income at all, is not required to register or submit a Self-Assessment Tax Return.
Here’s an example
In a real life example, a director of a property company received no pay and no dividends and they didn’t register for Self-Assessment. HMRC registered them for Self-Assessment in December 2014 and stated that they sent them a notice to file a Self-Assessment for 2014/15 on 6 April 2015.
The director declared that they did not receive the notice to file the return and that it was unexpected due to all of their income being subject to PAYE. The director incurred late filings penalties totaling £1,200. The outcome was that the court was not convinced that HMRC sent the notice to file a return to the correct address, hence the penalties were overturned.
In this case, HMRC were relying on guidance rather than the law and due to outdated records, a penalty was given unnecessarily.
Conclusion
The law states that, if you had no untaxed income, you do not need to submit a personal tax return. This is despite HMRC stating you do. However, to be safe, and to avoid the hassle of appealing, it’s probably worth doing one. It’s quick and easy, and will save you time in the long run.
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