Directors Tax Returns / Self-Assessment

Does a Director need to do a personal tax return

I am a Director of a Limited Company and am not in Self-Assessment – do I need to register with HMRC for Self-Assessment?

 

Update : Please be aware that there are changes to how dividends are taxed from April 2016 which changes this article guidance as the personal tax calculation on dividends has changed, see here.

 

HMRC tell you that because you are a director you have to register for self-assessment and fill in a tax return. This is not strictly correct.

There is nothing in the tax legislation which states that you are required to file a tax return simply because you are a company director.

There are only two reasons you need to do a personal tax return:

1. If HMRC send you a notice to file a tax return then you have to file one. If you are already in Self-Assessment then this will be the case.

2. If you have personal tax to pay / report. This is the one to think about.

We have put a list of typical items that need reporting on our blog article here.

  • If you only have employment earnings then you shouldn’t have further tax to pay as the tax should all be deducted at source through PAYE
  • If you have Dividend income then you will only have personal tax to pay if your total taxable income take you into the higher tax bracket (for 15-16 the higher tax threshold is £42,385)
  • If you have UK Interest income then you will usually only have additional personal tax to pay if your total taxable income take you into the higher tax bracket, this is because your bank will deduct basic rate tax at source

So for most simple “Owner Managed Businesses” they will only have Salary and Dividends to consider. As long as they stay below the higher tax threshold they won’t have personal tax to pay and don’t need to be in self-assessment. This is something that should be monitored regularly though as if you find you should be in self-assessment and you register too late you could be liable to a HMRC fine.

For dividends the cash Dividend you receive needs to be grossed up by dividing the cash dividend by 0.9. It is the higher figure that is used for assessing your Personal Tax position (e.g. a £5,000 cash dividend is a £5,555.55 gross dividend)

One further consideration is 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 – some mortgage providers will look at your company’s earnings but others will want to see your personal earnings. If this is likely to be a consideration for you it might be worth registering for self-assessment anyway.