Director’s Tax Returns: Don’t Believe Everything You Read!

The majority of owner-managed or family company directors receive a notice to file a tax return from HM Revenue and Customs (HMRC) each year. Most of those directors will regularly extract profits from the company (e.g. as salary and/or dividends).

However, in some cases a director may not have received anything from the company, and may have no other chargeable income and gains. Does such a director need to submit a tax return to HMRC (e.g. for the tax year 2017/18)?

The government’s guidance ‘Running a limited company’ ( states: “As a director of a limited company, you must…register for Self Assessment and send a personal Self Assessment tax return every year”. It adds: “You don’t need to register for Self Assessment or send a tax return if your company is a non-profit organisation…and you didn’t get any pay or benefits, like a company car.”

Furthermore, HMRC’s online guidance ( states: “You’ll need to send a tax return if, in the last tax year…you were a company director – unless it was for a non-profit organisation…and you didn’t get any pay or benefits, like a company car.”

Is that so?

Is the government’s and HMRC’s guidance an accurate reflection of the law? The legislation currently states that a person who is chargeable to income tax or capital gains tax for any year of assessment, and falls within one of two conditions, is required to notify HMRC within certain time limits. The first condition is that the person has not received a notice from HMRC requiring a tax return. The second condition is broadly that the person has received an HMRC notice requiring a tax return, but that the notice has subsequently been withdrawn.

However, there is no requirement to notify HMRC broadly if all of a person’s income and gains have been included in a ‘simple assessment’; or their income consists of certain sources (e.g. all amounts have been taken into account for PAYE purposes), there are no chargeable gains, and the person is not liable to the ‘high-income child benefit charge’ (TMA 1970, s 7).

As indicated, HMRC may issue a notice to file a tax return for the purpose of establishing a person’s chargeability to income tax and capital gains tax for a tax year, within certain time limits (TMA 1970, s 8).

Thus if the company director does not fall within the statutory requirement to notify HMRC of chargeability to tax, and if HMRC does not give a notice to file a tax return, there would appear to be no obligation for the director to file a return, irrespective of what the government’s and HMRC’s guidance may state.

The future introduction of making tax digital (MTD) will affect a person’s filing obligations in many cases; however, MTD is outside the scope of this article.

Guidance did not accurately reflect the law

In Kadhem v Revenue and Customs [2017] UKFTT (TC), the appellant was a company director who was charged a penalty (under FA 2009, Sch 55) for the late filing of his tax return for 2014/15. The appellant appealed. He had not received a tax return from HMRC. In respect of his directorship, he had received no remuneration, and the company had not paid any dividends. He had received income as an employee, and tax had been paid through PAYE.

HMRC stated that a notice to file a tax return was sent to the appellant at the address held on its records on 6 April 2015. HMRC also referred to the government’s guidance to support its contention that, as a company director, the appellant was responsible for submitting a tax return each year without prompt or reminder from HMRC. However, the First-tier Tribunal pointed out that this guidance did not have the force of law, and the appellant was under no obligation to follow it. In the tribunal’s opinion, the guidance did not accurately reflect the law. Furthermore, the tribunal found that the appellant did not receive the notice to file which HMRC alleged was sent to him on 6 April 2015. The appellant’s appeal was allowed (on ‘reasonable excuse’ grounds).

Practical point

By contrast, in Malinovskaya v Revenue and Customs [2017] UKFTT 245 (TC) and Kaczmarczyk v Revenue and Customs [2017] UKFTT 262 (TC), the appellant directors of dormant companies were sent, and received, notices to file tax returns. In each case, the tribunal dismissed appeals against late filing penalties. It did not matter that the appellants had no tax liabilities for those years.

HMRC has the power to withdraw notices to file tax returns (see TMA 1970, s 8B for individuals). Consideration could therefore be given to asking HMRC to withdraw a filing notice in appropriate circumstances, and also withdrawing a late filing penalty (under FA 2009, Sch 55, para 17A).

The above article was first published in Tax Insider in December 2017 (

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