Self Assessment and Directors (again!)

HMRC regulations

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Sorry to bring up this subject again as I know there have been a lot of threads on this subject in the past but I have a client who is a Director of his Limited Company and who I didn't register for self assessment becaause he had no income.  In the first year his company was trading he made no drawings and had no salary as he was not making any profit.

He has just received a penalty notice from HMRC for 2015 and says he did not receive a tax return to fill iin and has not had any previous correspondance.  He has moved house so I pointed out that it may have gone to his old address.

I phone HMRC and told them he did not have any income to report and could they withdraw the tax return.  The reply was that if he was a Director he had to submit a tax return no matter what his income.  I notice that the HMRC site now says that if you follow the links to find out if yu need to register.

Is this really true - does every Director need to register for self assessment?  I used to do this but after submitting several tax returns for Directors who had no tax to pay and receiving letters from HMRC saying they no longer required them to subit tax returns, I stopped registering them unless they had any tax due.

Is an appeal against the penalties likely to succeed?

Replies (9)

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By Tim Vane
21st Jul 2016 17:06

There is no statutory requirement for a director to register for SA or complete a tax return just because he is a director. However, HMRC are perfectly within their right to request a return from anybody, and it is their normal policy to do so for directors. if they have done so in this case then a return is required.

Presumably HMRC have sent the notification to the address listed for the director at Companies House - this is the normal approach by HMRC. If the director has not listed his current address at CH then you might need to have words with him.

In any case, it is well worth appealing the penalty on the grounds that the notice was not received.

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By CMED
21st Jul 2016 19:27

You have grounds for an appeal.

In the exactly same situation I was told that I was wrong, and after a rather heated conversation I asked the HMRC person I spoke to provide me with details of the exact legislation which said that a director needed to submit a return just by virtue of his directorship.

The letter of reply said that the penalty had been cancelled.

An apology would have been nice.

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By carol_ine
21st Jul 2016 22:44

Thank you I will definitely put in an appeal.

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RLI
By lionofludesch
22nd Jul 2016 07:53

Just ask them for their reference to statute law to which they refer. Tell them you need this to help you prepare your appeal.

Make it clear that you're not interested in their own guidance. That's just stuff they made up.

As they won't be able to provide a reference, bearing in mind there isn't one, that'll end the matter.

Incidentally, I assume here that HMRC didn't send a notice to complete a return. You're not clear on that point.

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Euan's picture
By Euan MacLennan
22nd Jul 2016 10:25

I would just mention that the grounds of your appeal against the late-filing penalty should be that your client never received (a Notice to complete) a tax return.

Almost as an aside, mention that he had no income (or at least, no income from which tax was not deducted at source) and hence, no obligation to notify chargeability (AKA register for self-assessment) under s.7 TMA 1970.

Finally, ask them politely to cancel whatever requirement they think they had for a 2015 tax return.
I have found that HMRC is happy to cancel the penalty and withdraw the requirement for a tax return in such cases.

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Morph
By kevinringer
26th Jul 2016 13:09

Over the years I've only managed to persuade HMRC to remove two directors from SA: one received no income at all from the company, the other only received salary which was fully taxed through PAYE. I've tried to have others removed but HMRC won't agree, even cases where the sole source of income from the company is PAYE and the taxpayers are basic rate only.

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By YN
26th Jul 2016 17:30

Below is the article from ACCA:
http://www.accaglobal.com/uk/en/technical-activities/technical-resources...

It is mandatory for a company director to file a tax return with HMRC, if a return has been issued.

It is also mandatory for a director (or anybody for that matter) to notify HMRC if they have a liability to tax for a particular year of assessment, by 5 October following the end of the year of assessment, otherwise they become liable to penalties, in accordance with Taxes Management Act 1970 (TMA) s7.

But what about if a Self Assessment tax return has not been issued to a director and he does not have a tax liability?

HMRC’s online guidance “Do you need to complete a tax return?” states that:

"You must complete a return if you're any of the following:

a company director (unless you're a director of a non-profit organisation, for example a charity, and don't receive any payments or benefits)...”

We have been made aware of several instances of HMRC staff insisting that a tax return is required for a director even though a return has not been issued and there is no further tax liability for the year, in accordance with the above guidance.

BUT is this guidance consistent with the legislation?

There is no specific requirement in TMA 1970 for a director to register for self assessment if there is no further tax liability for the year and buried within HMRC’s Manuals at EM4551, there is some further guidance:

“There is no requirement to notify chargeability where there is no liability to Income Tax or Capital Gains Tax or where sufficient tax has been deducted at source to meet the net liability for the year.”

There is no exception to this for directors.

Therefore, if a director of a company has no further tax liability for a tax year AND no self assessment tax return has been issued by HMRC, then there is NO requirement for the director to notify chargeability OR file a tax return with HMRC for the year in question.

If HMRC try to insist that a return is due in these circumstances, you should refer them to TMA 1970, s7 and their own manual at reference EM4551.

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By carol_ine
27th Jul 2016 09:52

The problem is that it looks like HMRC did issue a notice to file a tax return and the client just didn't (or say's he didn't) receive it. t makes me wonder whether it is better to register all directors for self assessment so that this does not happen. Does anyone do this?

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Replying to carol_ine:
RLI
By lionofludesch
08th Sep 2016 19:11

To be honest, most of mine needed to file anyway.

With Dividend Tax, the remaining few will need to.

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