Accountants are often asked whether a SA tax return is really necessary, particularly where all the taxpayer’s income is fully taxed under PAYE. The correct answer is that a tax return should not be necessary for such a taxpayer, unless he also has capital gains or child benefit to declare, or his income is over £100,000.
However, HMRC insist that all company directors should register for self assessment and submit a SA tax return every year. An exception is specified for directors of charities who don’t receive pay or benefits. This reasoning is based on the guidance on gov.uk under directors’ responsibilities, but a recent tax tribunal case has shown that this guidance is does not accurate reflect what the law says.
Mr Kadhem was appointed as a director in May 2014, and HMRC apparently sent him a notice to file a SA return on April 2015. Kadhem insisted that he didn’t receive this notice, and was not aware that he was required to submit a return as all his income was taxed under PAYE. Only after a late filing penalty was issued did he submit a tax return, but he appealed against the penalty.
The tribunal squashed all the late penalties as HMRC could not prove that the notice to file was sent to the correct address. If a person does receive a notice to file a SA return, that tax return must be submitted, unless the notice to file is withdrawn. The taxpayer (or we) can ask HMRC to withdraw a notice to file, but the call-centre operative may not agree to this request, as they can only see HMRC’s incorrect guidance on the issue.
The list of who must file a tax return has been updated for 2016/17 to include individuals who have either:
- dividends from shares of £10,000 or more;
- interest from savings or investments of £10,000 or more.
This arbitrary £10,000 threshold is odd, as someone whose personal allowance has been covered by earned income would have to pay tax on dividend income exceeding £5,000. The same taxpayer would have a tax liability in respect of interest over £6,000, if the savings rate band was available, and he was a basic rate taxpayer.