It has long been an irritation to accountants that HMRC insist all directors must register for self-assessment and complete a tax return, even if there is no income to report.
This requirement is not imposed by law, but it is endlessly repeated by the HMRC as it has been included in the HMRC and gov.uk guidance. The position of a “no income” or a “no income other than PAYE” director has been tested in several cases before the first-tier tribunal.
For example, in the case of Karen Symes, HMRC insisted that she complete a tax return for the tax year in which she became a director, but she received no dividends or income from the company in that year.
The tribunal judge said “No one has a statutory obligation to do anything in relation to income tax simply because they are a director of a company which is not a not-for-profit company.” He went on to say: “Being a director per se does not entitle a person to dividends … If dividends from the company of which a person is a director fall within the higher rate band or above [for 2015/16], then there was a liability to notify, but not because of being a director.”
The good news is that HMRC have finally changed their guidance on directors’ tax returns. The tool on gov.uk that helps a person decide whether they need to complete a return now results in “You do not need to send a self- assessment tax return” even if the person is a director, as long as their income is below £50,000, and they have no other taxable income. The wording could be improved around whether a director works for themselves, but it will be understood by most people.
Also, the gov.uk guidance on directors’ responsibilities no longer refers to completing a personal tax return. Hurrah!
Written by the Tax Advice Network