HMRC changes guidance for directors’ returns

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For years we have been irritated by HMRC insisting that all directors must register for self assessment, even if they have no tax to pay. Now HMRC has changed its stance and its guidance.

Not the law

The requirement to submit a tax return just because a person is a director is not imposed by law, but this inaccuracy has been endlessly repeated by HMRC. The advice to register for self assessment if you are a company director has been included in guidance on gov.uk, as well as built into the online tools which help individuals decide whether they need to complete a tax return.

Tribunal rulings 

The position of a “no income” or a “no income other than PAYE” director has been tested in several cases before the first tier tribunal.

One such director was Karen Symes (TC06320), who HMRC insisted should complete a tax return for the tax year in which she became a director, but she received no dividends or income from the company in that year.

In concluding that case Judge Thomas said: “No one has a statutory obligation to do anything in relation to income tax simply because they are a director of a company which is not a not-for-profit company.”

He continued: “Being a director per se does not entitle a person to dividends … If dividends from the company of which a person is a director fall within the higher rate band or above [for 2015/16], then there was a liability to notify, but not because of being a director.”

Change has come

The good news is that HMRC has finally changed their position on directors’ tax returns. Their new advice is that a director will not be required to file an SA return if he or she is taxed under PAYE and has no additional tax to pay on other income such as dividends.

A tax return must still be filed if HMRC has issued a notice to file under TMA 1970 s .8. In such cases, the director can ask HMRC to have the notice to file withdrawn, but it may decline that request and insist that the tax return is submitted. Once a section 8 notice has been issued, and not withdrawn, the tax return must be submitted and penalties will be imposed for a late return.

Guidance amended

This new approach by HMRC was announced in the Agent Update issue 69 published on 12 December 2018, but the gov.uk guidance was changed at least a week before that publication was released.

The tool on gov.uk that helps a person decide whether they need to complete a return now results in a message stating “you do not need to send a self-assessment tax return” if the person is a director, as long as their income is below £50,000 and they have no other taxable income. The wording in that tool could be improved around whether a director works for themselves, but it will be understood by most people.

Also, the gov.uk guidance on directors’ responsibilities no longer refers to completing a personal tax return. Hurrah!

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

Replies

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14th Jan 2019 10:15

This is good to know, although I've never been "irritated" by being able to charge easy fees.....

Thanks (3)
to petestar1969
14th Jan 2019 13:33

Which is exactly the sort of slimy ethical practice that encourages the perception that accountants are charging money for old rope - in this case old rope to climb a wall that can just be walked around.

Thanks (1)
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14th Jan 2019 12:19

Provided you call the helpline after completing the online checklist, HMRC will not only cancel current tax returns, but, provided the circumstances are unchanged, will immediately cancel the previous year's disputed directors' tax returns and outstanding late filing penalties.

It was worth persevering.

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By mominnz
14th Jan 2019 13:43

I don't think so it's worth taking the risk and fighting back with HMRC.
They don't really agree not to send in a tax return, just spoke to them over the phone.
Personally would not take the risk.

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By A Chalk
to mominnz
14th Jan 2019 14:20

I had a similar experience; the person I was speaking to insisted that my client had to submit a return until I directed them to the online tool. They finally agreed that there was no need to submit one.

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14th Jan 2019 14:25

Perhaps they could now stop their system insisting that if you are a director then you must be in receipt of pay (excluding not for profits, that is). Many small companies on hard times do not pay their directors because there are no funds - and it is outside Minimum Wage rules because of the company's ownership, etc.

Thanks (1)
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By MDK45
16th Jan 2019 16:26

I thought the paperwork also acted as a formal declaration by a director of earnings. When are they going to change the law also for people earning > 100k ?

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By Mikolaj
22nd Feb 2019 12:24

I agree with Tim Vane.
Using what was HMRC errant guidance merely as a tool to provide a chargeable meaningless service (SA submission) is neither in the interests of the client or of any decent accountant.
Greed is not good, and rightly, fairness and decency are implicit in each and every professional institutes codes of conduct. Member or not, one should follow pricinples.

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By scrasey
23rd Jul 2019 15:02

Too late for us unfortunately. we had repeatedly requested that HMRC withdraw a notice to file as they constantly referred to TMA 1970 S7. I repeatedly pointed out to them that S7 made no mention of directors. HMRC owed my client £1.47 and all her income was PAYE. only when it went to Tribunal did HMRC mention S8. the tribunal also incorrectly noted our insistence that no return was due under S7, and ignored the fact that this was HMRC's position right up until tribunal and that was why we disagreed with them. numerous calls and even in writing S7 from HMRC. £300 penalty for client. well done to the jobsworths at HMRC. This guidance should have been changed years ago and it's about time our politicians stopped knighting the [email protected]@rds that run HMRC and appoint people that can at least make HMRC fit for purpose.

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