Should a Director File a Self Assessment Tax Return?
The subject of whether or not a Director should file a Self Assessment is debatable and controversial.
This what HMRC says on the GOV.UK
Who Must Send A Tax Return
Quote: "You’ll need to send a tax return if, in the last tax year ... you were a company director .."
Furthermore, if you were to speak to anyone at HMRC, you will certainly be informed that HMRC insist that a Self Assessment for a Director is a specific requirement, more specifically, when the company is trading and the Director is receiving a salary.
However, many well qualified tax commentators seriously question whether HMRC have a legal basis for this requirement, to the point that it is widely believed that the above GOV.UK website statement is somewhat short of the full legal position.
The Law on the Requirement to File a Self Assessment
The legal requirement to notify HMRC of unpaid taxes is the Taxes Management Act 1970 Sections 7 and 8, which do not single out Directors for special attention
The law says that anyone must notify HMRC of taxable income which has not been notified through the normal processes (eg. PAYE), and which give rise to further tax payable. Fair enough.
The inference for anyone therefore is that if PAYE has been filed, and all other income, eg. dividends, does not give rise to further tax, then there is no requirement for a Self Assessment.
In fact, HMRC's guidance confirms this:
Quote, “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.”
Nothing further is added to make Directors an exception to this guidance.
Let's rephrase the question:
When Should a Director File a Self Assessment?
Firstly - if HMRC say so!
If HMRC ask for a Self Assessment then your only options are either to do it, or to argue why you should not. Given HMRC's stance on this you could be arguing for some time, and therefore conclude that it is simpler just to do it.
Secondly - if more tax is due.
Realistically, this will apply to many company Directors where the combination of salary and dividend take the personal income into the higher rate tax bands. This is particulary more relevant from 2016/17 under the New UK Dividend Tax Calculation
Mortgage companies may ask for your SA302
, which is HMRC's own tax calculation for you which arises from the Self Assessment process.
So for some Directors it may be worthwhile having Self Assessments in place for this reason alone.
What do Accountants need to do regarding your Self Assessment?
Most of the work for an accountant is collecting the various personal income figures, which often involves several communications, eg. emails and telephone calls, and then checking the calculations for any tax payable or refundable.
The digital forms are then completed and submitted to HMRC.
Many accountants will probably also include personal tax planning in the Self Assessment process and therefore their fees.
Accountants have a responsibility to follow the tax laws, advise clients accordingly, and charge a fair fee for their work.
For most Directors, their personal Self Assessment is probably required to present HMRC with a full picture to calculate and pay the correct amount of tax.
Some Directors may be able to argue that a Self Assessment is not required because their salary is low, and declared through PAYE, and any dividends or other income do not attract higher rate tax. However, it will probably take some considerable effort to persuade HMRC.