Rules on directors’ tax returns are not as clear you might think

George Hay Chartered Accountants

Per the guidance, a director must register for self-assessment (SA) and send a personal SA tax return to HM Revenue & Customs (HMRC) each year, however, this doesn’t always apply.

There are exemptions to this rule, one of which was highlighted recently at a tax tribunal.

Mohammed Salem Kadhem has been a director of a property company since 21 May 2014. Since that time, he has received no benefits or dividends from that company and consequently chose not to register for self-assessment.

Mr Kadhem, however, was automatically registered for self-assessment by HMRC. After apparently “failing” to complete a self-assessment tax return, the Revenue sent a notice to file immediately for 2014/15 on 6 April 2015.

The director denied ever receiving this notice and otherwise thought that a self-assessment return was unnecessary as all his income was taxed, at source, through PAYE. Nevertheless, Mr Kadhem eventually submitted a return for 2014/15 on 21 September 2016 in response to a second letter, this time demanding a £100 penalty fine.

Such was the length of time that the tax return was delayed, further fines were issued totalling £1,200.

Mr Kadhem appealed the fine and attended a tax tribunal. HMRC quoted the guidance as published on, but the tribunal ruled that the guidance does not have the force of law and did not “accurately reflect what the law says”.

It added: “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.”

Further to this, HMRC could not appropriately prove that the notice to file a return had been sent to the director’s correct address.

The tribunal accepted that he had a “reasonable excuse” for filing a late return and all penalties were quashed.

While Mr Kadhem may have been pleased to have been told that he did not need to submit a self-assessment tax return, it may nevertheless be wise for directors to do so. Self-assessment tax returns can make tax planning a lot easier and will help to ensure you receive all the reliefs that you are entitled to.

Link: Tribunal: Company directors don’t have to submit tax returns

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