Do directors need to file a personal tax return?
According to HMRC’s published guidance (which you can see here), all company directors need to file a personal tax return.
However, the view of HMRC that all company directors need to file a personal tax return is not strictly correct and this point was tested in a recent tax case - Mohammed Salem Kadhem v HMRC (see here).
The director (Mr Kadhem) appealed against penalties totalling £1,300 asserting that he was unaware that he had any obligations to file a personal tax return.
You can see here how easily penalties can stack up if you don’t file your tax return on time.
The facts of the case were as follows:
- Mr Kadhem had become director of a UK limited company in May of 2014.
- The only income he received was a salary that was subject to PAYE.
- HMRC asserted that he had registered as self-employed in August 2014 - however it did actually not set up a record until December of the same year.
- HMRC said that it sent him a notice to file a 2014/15 tax return in April 2015.
- A return was actually due by 31 January 2016 - however no return was filed until September 2016.
Mr Kadhem initially appealed against the penalties on the basis that he had a reasonable excuse for late filing. He pointed out that he had not received a notice to file a tax return and that he filed a return as soon as he realised that penalties were accruing.
HMRC denied his appeal arguing that because he was a director it was necessary for him to register for Self-Assessment and file a return, without any prompt or encouragement from HMRC.
Mr Kadhem appealed to the Tax Tribual who agreed that he had reasonable excuse for late filling for the following reasons:
- HMRC’s guidance here suggests all directors need to file a personal tax return, however their opinion is not legally binding.
- There was no evidence to demonstrate that Mr Kadhem had received a notice to file a tax return or indeed the first late payment penalty.
- Mr Kadhem filed a return as soon as he was aware that he was being penalised.
So when does a director need to file a personal tax return?
There are really only two reasons why a director needs to file a personal tax return:
- If HMRC have sent you a notice to complete a tax return then you must file one. If you have already registered for Self-Assessment and have a 10 digit unique taxpayer reference number then this will almost certainly be the case.
- If you have personal tax to pay to HMRC. This is the one to consider carefully and some examples would be where you are a high earner in receipt of child benefit (see our earlier blog here) or you might be a director who receives dividends from your company (see here).
It’s also worth considering that if you are likely to be applying for a mortgage in the future, the mortgage provider may want to see your personal tax returns to verify your income.
Whilst the majority of mortgage providers will look at your company’s profits, equally others will want to see your personal income - so you may want to consider be registering with HMRC for Self-Assessment in any event.
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