Section 7 Taxes Management Act 1970 sets out when a tax return is necessary by law.
So for a close company director taking a small salary and the balance taken as dividends where he stays a basic rate taxpayer on his total income with no income tax due is it necessary to submit a return? Is it recommended even if not legally required?
Thanks in advance.
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You have only covered one of the two situations where the submission is legally required.
The other is where HMRC have served a notice to submit a return on a taxpayer.
You are right about the one you cover.
The only circumstance in which I would advise a client to submit a return voluntarily is where submitting a return is the best way to claim reliefs or establish losses.
Actually...
... the only time a Tax Return is required is when HMRC have issued a notice.
A taxpayer must notify liability to income tax, if they are so liable, within 6 months of the end of the tax year. One way of notifying chargeability is to just submit a tax return.
There are those though that advocate always cubmitting returns for their company directors to avoid any dropped balls.
Thanks for your reply, Yes, agreed about submitting a return voluntarily for claiming reliefs or establishing losses.
Regarding HMRC serving a notice, I had a few clients that were served notices but did not fall within the requirement to submit a return, on contacting HMRC the notices to submit were cancelled.
Does director need to submit a Tax Return
Bear in mind also that the Revenue indicate that if you are in receipt of more than £10,000 of investment income (e.g. dividends) then you should submit a tax return, although this is not shown on form SA1.
Investment income
Bear in mind also that the Revenue indicate that if you are in receipt of more than £10,000 of investment income (e.g. dividends) then you should submit a tax return, although this is not shown on form SA1.
But that's not true either.
So Then
If a new client comes to you to set up a service style company where he will earn say £10k salary and £25k dividends do you register the guy for individual self assessment or wait until HMRC issue him a notice to file SA return
Neither
If a new client comes to you to set up a service style company where he will earn say £10k salary and £25k dividends do you register the guy for individual self assessment or wait until HMRC issue him a notice to file SA return
We do nothing to notify chargeability for a director of a new company, if only because you never know how the business will go and we don't want to saddle the client with additional compliance obligations and costs which may prove not to be necessary.
But if the HMRC does not follow its usual practice of issuing a tax return automatically, we notify chargeability if and only when the director becomes liable to higher rate tax (or CGT or acquires a letting property, etc.).
I always put directors into the self-assessment regime as a matter of course.
As Steve says it forces you to ensure that the director hasn't strayed into the 40% bracket or isn't in receipt of income external to the company that he would not neccessarily inform you of.
Also, you can get SA302s for for mortgage purposes for directors who submit tax returns whereas you can't for those who don't.
The fee I quote for the company will include the SA returns for directors with a small transfer to the DLA to avoid the BIK.
Thanks Euan
I wondered what others did. I am the same and don't do it automatically unless have rental income or other trading income.
Risk
I agree with the comments that there is no specific legislative requirement that by being a "director" a requirement to complete a self assessment tax return arises.
It just happens to be the case, in my experience, that more often than not for HMRC to issue a notice to complete a Self Assessment tax return to directors.
I was therefore fairly relaxed about NOT registering directors for SA, that was until HMRC were given powers to levy a fine that exceeds the tax liability concerned a couple of years ago for late filed SA returns.
The risk - the problem - that I see is that HMRC might issue a notice to compete an SA return and the director claims to not receive it or director receives it and thinks "that's OK my accountant deals with all things HMRC for me" and does not advise his tax advisor.
Given a submission is not legally required why does the hmrc website and it's leaflets say otherwise in no uncertain terms? http://www.hmrc.gov.uk/sa/need-tax-return.htm Given the amount of media attention from the Government about legal tax avoidance schemes being immoral and going public with names involved, here is a situation where hmrc appear to be giving out incorrect information on when a return is required. Is this immoral? As has been said in previous posts there are compliance costs of preparing returns that are being suffered unnecessarily by clients.
Just found this related thread: https://www.accountingweb.co.uk/anyanswers/question/are-you-making-every...
@Southbankdelboy
It's not unusual for HMRC to express its views that are not supported by legislation.
There would be no need for tribunals and court cases if HMRC always got the legal basis correct.
@neileg
It's not unusual for HMRC to express its views that are not supported by legislation.
There would be no need for tribunals and court cases if HMRC always got the legal basis correct.
Any member of the public receiving form SAF2 would assume the information contained therein was correct.
This leaflet for example does not say that the information is it's views only and not the law. Using words like "you will have to complete a tax return" could be construed as misleading. If incorrect as mentioned in previous posts then you would expect it to be withdrawn or amended?
Would I expect?
I think it is wrong for any part of government to give incorrect information.
Do I expect HMRC to withdraw this incorrect information? No.
Student loan deductions
Just another observation.
A few of the new corporates I've taken on over the last couple of years have directors/participators young enough to have income contingent student loans.
Although their salaries are not enough to cause an in year deduction via the PAYE system (ahem), once dividends are taken into account then usually there is a student loan deduction due.
This would be done through the self-assessment return. I'm not aware of any other way it can be achieved unless a SA return is made. So, the answer to the question "have you got an income contingent student loan?" may be the deciding factor in such cases.
As regards HMRC being a law unto themselves well, unfortunately for them they are not.
I remember an Andy Capp cartoon many years ago where Andy is being chased down the street by the copper. The out of breath copper shouts at Andy to stop running as, in the eyes of the law he was presumed innocent until proven guilty. Andy replies, "Why are you chasing me then?"