Do company directors have to file a tax return?

Another tax tribunal has slammed HMRC for insisting that there is a statutory requirement for a director to submit a self assessment tax return.
Does a director have to submit a tax return if they receive no income? The law says ‘No’, but HMRC insist that all directors are required to register for self assessment and submit a tax return every year.

HMRC will fight this point all the way to tax tribunal, as was reported last year concerning the case of Mohammed Salem Kadhem (TC05929), who won his appeal and had the penalties for late filing removed.

Unfortunately, whether the taxpayer wins at the tax tribunal tends to be a lottery. Olga Malinovokaya (TC05725) and Krzysztof Kaczmarczyz (TC05744) both lost their appeals against late filing of tax returns issued to them solely because of their directorships. Their companies were both dormant throughout the relevant tax years, and they received no income from those companies, but HMRC would not back down from the requirement to file a tax return.

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In the case of Karen Symes (TC06320), the taxpayer’s accountants registered her for self assessment in November 2016, so she could declare and pay tax on dividends she received in 2016/17. But HMRC issued a notice to file a tax return for 2015/16. This made little sense to Symes, as she believed her tax position for that year had already been dealt with on a form P800 and a small tax refund was due.

Symes assumed the notice to file a tax return issued on 16 December 2016 was requesting a tax return for 2016/17 (as that is what she had been told to expect by her accountant), but it actually related to 2015/16. As soon as she realised her mistake she filed the 2015/16 return in paper form on 7 April 2017. Unfortunately the three-month period for filing the return ran out on 15 March 2017.

Symes did receive dividends of £25,285 for 2015/16, but as those were assessed as part of her basic rate band, the 10% tax credit covered all the tax payable on those dividends, and she had no further tax to pay.

Did she have to file?
HMRC said that as Symes was appointed a director of a company on 20 June 2014;”she had a statutory obligation to notify HMRC of her requirement to complete a self assessment tax return”.

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. The statutory obligation on every person is to notify liability if they are chargeable to tax and their income and gains do not fall within at least one of the exceptions in TMA 1970, s 7(4)to(7)”

He went on the 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, then there was a liability to notify, but not because of being a director.” The judge was referring to 2015/16 as from 6 April 2016 there is a tax liability arising from dividends in excess of £5,000 falling with the basic rate band.

Symes did not have to notify HMRC of the need to file a return for 2015/16, as she did not have a tax liability for that year. The P800 form does ask the taxpayer to tell HMRC about any changes in circumstances, and refers to notes to the P800, but as the judge was not provided with a copy of those notes he discounted this point.

The tribunal decided that Symes did have a reasonable excuse for filing the 2015/16 late, as she relied on advice from her accountant, which was correct. She was not required to second-guess the accountant on matters of statutory interpretation and best practice.

Why do HMRC insist?
HMRC’s attitude is partly “computer says no”, but there is also a tendency for HMRC officers to rely on the guidance published on rather than to read the tax law. The guidance regarding who must submit a tax return is incorrect, as I pointed out in my earlier article, and HMRC must know this.
What to do

From 2016/17 onwards it is more likely that a director/ shareholder will have a liability to tax due to dividends received, so it is important to check that all shareholders are registered for self assessment.