Does a company director with no tax liabilities, have to file a Self Assessment return or not? Here is our opinion on this very confusing matter.

The purpose of a personal tax return is to notify HMRC of an individuals’ obligation to pay tax. It is a legal requirement to file a tax return if there is a tax liability to pay.

A director must also file a Self Assessment tax return if HMRC has issued one for the individual to complete.

Prior to April 2016

That much makes sense, but what happens if you are a company director paying a mixture of dividends and directors salary? Until April 2016 many directors have been able to stay below the lower rate tax threshold with a mixture of maximum dividends and minimum directors salary. Do they need to file a tax return?

HMRC would say yes. In their own Self Assessment pages, they list being a director as sufficient reason.

“According to HMRC, you’ll need to send a tax return if…

  • you were a company director – unless it was for a non-profit organisation (eg a charity) and you didn’t get any pay or benefits, like a company car”

HMRC seem to expect all Company Directors to be registered for Self Assessment and they expect them to have filed a return, even if it is a nil return, for each year they serve as a company director.

Directors with nothing to declare might argue that it’s a waste of time paying an accountant to file a nil return, or a waste of their own time filing one themselves. If the accountant offers a free return as part of a bundled accounting package, then a benefit in kind may be created. It can get all sorts of complicated.

Either way, it’s a lot of admin for no apparent benefit.

The fine print

Fortunately, there is no actual legal requirement to file a nil return.

Notice EM4551 from HMRC’s Enquiry Manual – is a long established HMRC notice that confirms there is no obligation for an individual to notify HMRC where there is no liability for tax. The notice states:

“There is no requirement to notify chargeability where there is no liability to IT or CGT or where sufficient tax has been deducted at source to meet the net liability for the year.”

There is no exception to this for directors in the document so it must be reasonable to assume that this statement includes directors.

After April 2016

All change in 2016. With the introduction of the Dividend Allowance, more directors will pay tax in 2016-17 so if this includes you, then our recommendation is for you to register now.

Late Filing Fines

So we have established that HMRC say directors DO have to file returns on one hand and their own manuals confirm that you DON’T where there is no tax to report. What is the reality? If you have never filed a return and HMRC are not expecting one – they will not chase you for it, nor fine you for failing to file it. However, when you register for self assessment and tell HMRC you became a director in years prior – what happens then? We have seen a number of directors register for Self Assessment and declare taxable incomes in the current year who have then fallen foul of HMRC’s penalty system and have been fined for not filing earlier nil returns.

HMRC may or may not, it seems to be a little hit and miss – charge you a £100 late filing fee for each year that you have not submitted a tax return. If you do get those fines you could try to appeal them in writing to the address on the letter using the EM4551 defence above.

Don’t Avoid It!

The Dividend Allowance means directors who have not paid tax before, may find themselves paying taxes from 2016-17. Digital tax accounts are coming for all companies and individuals, so we suspect there is no avoiding the need to register in the long term!

If you have not done so already – here is the link to register for Self Assessment:


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