Over the years HMRC has given conflicting advice when it comes to deciding whether a director needs to register for self-assessment. The result is that this is a much-debated question amongst accountants and Company Directors. So if you aren’t sure whether you (or your client, if you are an accountant) should be registered, read on.
What is Self Assessment?
Let’s start with the basics. Self-assessment is a way that UK individuals declare untaxed income to HMRC and pay any tax owed. Currently, they do this using a tax return form, which must be submitted, in most cases digitally, by 31 January each year.
Side note – changes are coming from April 2023, known as making tax digital, which will see many individuals needing to report and pay tax quarterly so the traditional tax return form will be replaced.
The thing is that a person can be a Director of a business and not receive any income. So if they are not receiving any untaxed remuneration then they have no income to declare on a tax return. In this case, why would they register with HMRC?
The HMRC Rules
The confusion happened many years ago!
According to HMRC legislation, there is no rule stating that a Director must register for self-assessment just because they hold this position. The problem is years ago, HMRC advised that despite their own legislation they did want Directors to register for self-assessment and submit a blank tax return, if necessary. The result since then has been that many Directors have continued to register to avoid any unwanted attention and hassle if they were investigated.
Should Directors Register for Self Assessment?
A Director in receipt of untaxed income such as dividends should obviously register for self-assessment because they will need to pay tax on this income. This most likely scenario is Director Only Companies, where they want to take full advantage of the tax benefit of being incorporated and pay themselves an efficient combination of dividend and PAYE salary.
But for Directors who take no salaries, then there is no legal argument that they should register. Indeed many are now ignoring the recommendation from HMRC and not registering.
If you are a Director, it’s up to you whether you choose to register and take the risk of HMRC challenging you in the future.
If you are an accountant, then it is up to you whether you advise your clients to register or not. Some accountants choose to register all their Directors so that each year they are forced to put the Directors through their in-house annual self-assessment questionnaires. This avoids missing anything that their clients may not have told them about or prompt their clients into letting them know about any untaxed income they may have forgotten about or not realised needs to be declared on a tax return.
Whatever your situation, registering with HMRC (even if you don’t have untaxed income) could be the safest option to avoid any unwanted attention. But if you are happy to take on HMRC, then you can choose not to register.