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 In such cases, the director can ask HMRC to have the notice to file withdrawn, but it may decline that request and insist that the tax return is submitted. Once a section 8 notice has been issued, and not withdrawn, the tax return must be submitted and penalties will be imposed for a late return.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