According to the gov.uk guidance, a director must register for self-assessment (SA) and send a personal SA tax return to HM Revenue & Customs (HMRC) each year.
However, this isn’t always the case. There are exemptions to this rule, one of which was recently highlighted at a tax tribunal.
Mohammed Salem Kadhem has been a director of a property company since 21 May 2014. He’s since received no benefits or dividends from that company, and consequently chose not to register for self-assessment.
Mr Kadhem, however, was automatically registered for self-assessment by HMRC. After apparently “failing” to complete an SA tax return, the Revenue sent a notice to file immediately for 2014/15 on 6 April 2015.
The director denied ever receiving this notice, and otherwise thought that an SA return was unnecessary as all of his income was taxed at source through PAYE. Nevertheless, Mr Kadhem eventually submitted a return for 2014/15 on 21 September 2016 in response to a second letter, this time demanding a £100 penalty fine.
Such was the length of time that the tax return was delayed, further fines were issued totalling £1,200.
Mr Kadhem appealed the fine and attended a tax tribunal. HMRC quoted the guidance as published on gov.uk, but the tribunal ruled that the guidance does not have the force of law and did not “accurately reflect what the law says”.
It added: “If a person receives a notice to file a return he is under an obligation to file a return by the due date, but that is not what the Government guidance says.”
Further to this, HMRC could not prove that the notice to file a return was sent to the director’s correct address.
The tribunal accepted that he had a “reasonable excuse” for filing a late return and all penalties were quashed.
While Mr Kadhem may have been pleased to have been told that he did not need to submit an SA tax return, it may nevertheless be wise for directors to make SA tax returns. SA tax returns can make tax planning easier and help ensure you receive all the reliefs you are entitled to.