As we reach the end of the 21st self assessment tax return filing season, we still find that some of the most basic questions need a bit of thought before answering. Consider the tax obligations of a company director. Does he or she need to file a self assessment tax return?
Firstly, it is mandatory for a company director to file a tax return with HMRC if a return notice has been issued.
Secondly, 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 Section 7 of the Taxes Management Act 1970.
However, what 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 states that:
“You’ll need to send a return if, in the last tax year you were a company director – unless it was for a non-profit organisation (such as a charity) and didn’t get any pay or benefits, like a company car …”
I am aware of several instances of HMRC staff insisting that a tax return is required for a director even though a return notice has not been issued and there is no further tax liability for the year, in accordance with the above guidance.
However, this guidance is not completely 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 IT or CGT or where sufficient tax has been deducted at source to meet the net liability for the year unless:
- the taxpayer is liable to pay income tax at a rate other than the basic rate or savings rate, or
- the taxpayer is liable to a higher rate child benefit charge.”
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 notice 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 Section 7 TMA 1970 and their own manual. Just beware that Section 7 was changed for 2016/17 onwards to accommodate the dividend tax rules.
As with all such tax situations, advice should also be sought before proceeding. Contact solutions@ellacotts.co.uk for more information.
