I advised a client recently that as her only income was as a director of a company, all of which was paid under PAYE, she didn’t need to file a self-assessment tax return unless she received a notice from HMRC to do so, which she hadn’t.
“No”, she said “you’re wrong”
(she’s a bit feisty, but I like that). “The HMRC guidance on directors’ responsibilities says a company director must register for self-assessment and send a personal SA tax return to HMRC every year.”
Quite correct, it does, and even though she
was willing to pay me to do so, I corrected her and explained that the guidance is actually wrong, as it is so often. For years HMRC has been making up its own rules and telling their staff it’s the law – not surprisingly this is always to HMRC’s advantage and not the taxpayers.
She is quite right, however, about what the guidance says; elsewhere on the HMRC web
pages there is a list of who must send in a tax return, which says “You’ll need to send in a tax a return if, in the latest tax year: - you were a company director - unless it was for a
non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car.”
Both of these assertions are wrong and do not reflect the law, which says that an individual must submit an SA tax return if they are issued with a notice to file a return under Taxes Management Act 1970 section 8(1).
An individual who has not been issued with a notice to file a tax return or who has received such a notice but it was withdrawn, must none the less report to HMRC if they have income or gains which are chargeable to tax for the year.
A director whose only income is taxed under PAYE, or has no taxable income at all, is not
required to report to HMRC or to register for self-assessment.
This has recently been confirmed (case TC05929) at a tribunal hearing at which HMRC quoted the guidance which
sets out director’s responsibilities (see above). The tribunal considered that this guidance does not have the force of law and concluded; “this Government guidance notice does not accurately reflect what the law says.”
The tribunal helpfully summarised: “if a person receives a notice to file a return he is under an obligation to file a return by the due date,
but that is not what the Government guidance says”.
The stubborn insistence by HMRC that all company directors must file an SA tax return has been a point of discussion by accountants for many years who know that the guidance does not reflect the law, but as HMRC frontline staff only have access to the incorrect HMRC guidance, and not to the tax law, such arguments are rarely
successful.
Unfortunately, the cost of challenging HMRC’s opinion on whether a director should submit a tax return is generally well in excess of the cost of completing the unnecessary tax return, but if you don’t need to file, and are then fined for not doing so, it will be worth challenging.
The
moral of this story is clear: if in doubt check with your accountant. He or she will almost certainly know the law – they had to to pass their exams - which most HMRC staff do not.
Be tax aware.
Noel Guilford
Noel Guilford is
the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at noel@guilfordaccounting.co.uk or by phone at 01244 660866. He is the author of the 'Figure it out - an entrepreneurs guide
to understanding your business numbers' which you can obtain by visiting http://guilfordaccounting.co.uk. His latest book, How to Build a Successful Business' will be published in 2017.