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Directors’ Self Assessment Responsibilities & Tax Liabilities

A basic introduction to Directors’ tax reporting requirements and the tax liabilities which may arise for a company Director 

 

I’m a Director, do I need to do a Self Assessment Tax Return for HMRC?

  • There is a mixed set of advice here, but if you were to ask HMRC they would say yes.  So my advice here is that even if you are unlikely to have extra tax to pay, you should register with HMRC as a Director needing to complete Self Assessment Returns, and then ensure these are filed before January 31st following the end of each tax year. After all, it is better to be safe than sorry!
  • The form to fill out, print and post to HMRC to let them know you are a Director can be found here
  • Alternatively I can file this for you. Contact me to discuss how I can help you with your Director’s Self Assessment.

 

OK, so I’ve registered for Self Assessment, what are the things I may need to pay tax on?

  • I will briefly mention them here, and go into more detail below and/or in future articles.
  • There are 4 things which a Director may need to pay tax on come the end of the financial year:
  1. Self Employed work or other income which has not yet been taxed.
  2. ‘Benefits’ from the company which are considered taxable.
  3. Dividend Income if total taxable earnings exceed the basic taxpayer limit.
  4. ‘Deemed Salary if any contracts completed fall under IR35 Rules.

 

1.       Self Employed Income or ‘Other’ Income which has not been taxed

  • Many Directors of micro/one-man-band companies also work for themselves in some capacity on a freelance, self employed basis.
  • So whilst they are taking a salary and/or dividends from their company, they may also be receiving money from contracts undertaken outside of the company, which will need to be reported to HMRC as self employed income.
  • Self Employed income just like company sales may have associated costs/expenses which can be deducted from the money received to give the taxable income figure.
  • For example, a Director completes a contract worth £1,000 for a client. There are costs for travel and hotel in order to work from the client’s offices for part of the contract – these amount to £250. The profit, or taxable income, from this contract is £750.
  • Note that if you are Self Employed you also need to register as such with HMRC and may be liable for Class 2 National Insurance Contributions. Read more about this here . I will be writing an article in the next few weeks about the tax and NI liabilities of Self Employed individuals.
  • Examples of ‘Other’ income which would need reporting via Self Assessment are untaxed investment income or income from property letting. Make sure you keep good records of your investments and income sources, plus their related costs (if applicable) so these things can be included in your tax return at the end of the year.

 

 2.       Taxable ‘Benefits’

  • Most Directors will receive a P11D at the end of each financial year (5th April each year) from whoever does their payroll.
  • This will detail any benefits or expenses the Director has received from the company during the year which need to be reported on a Self Assessment Return, and in some cases taxed.
  • Examples of items which would be considered taxable benefits are mileage paid over the allowed rate of 45p per mile, childcare vouchers over the allowed values (which is income dependent),  company cars and the like. Your P11D should detail what figures to include on the Self Assessment Return.
  • Examples of items which may need reporting are use of home expenses payments where these exceed the value allowed of £4 per week. The Director will need to report that these were paid to him/her but can then offset related costs so no tax will be owed.
  • If you are doing your own payroll you may need some assistance pulling together the figures to report on a P11D each year, and subsequently on your tax return. Contact me  if you think you need help with this.

 

3.       Dividend Income

  • When Directors receive dividends from their company, these have already been subjected to Corporation Tax.
  • It would be very mean to immediately tax them again on receipt, so instead they are given a 10% ‘tax credit’ by HMRC.
  • And this is where a lot of people get lost!
  • Dividends are paid ‘net of tax’ to Directors. So if you pay yourself £900 in dividends, this is considered to be a £1,000 dividend net of 10% tax paid as far as HMRC is concerned.
  • The 10% tax isn’t paid to anyone, it only exists on a piece of paper (the dividend certificate). As long as your company has paid its Corporation Tax you have paid all the necessary taxes at this stage.
  • Having said that, if you are a higher rate tax payer: if your total income exceeds £41,385 including dividends (for year 2014-2015), you will need to pay additional tax on the dividends you have received.
  • Dividends over the £41,385  income threshold are taxable at 32.5% (up to the next threshold of £160,000). However, as they are already given the 10% tax credit, only 22.5% more needs to actually be paid to HMRC on the value over the £41,385 income threshold.
  • If you want to check whether you are likely to need to pay additional tax on your dividends you can find a dividend tax calculator here

 

4.       ‘Deemed Salary’ from IR35 Contracts

  • I will write more about this in next week’s article.

 

Do I need an accountant or posh software to work all this out myself?

  • No, you can do this yourself if you wish.
  • The key here is to be organised with your income sources and their related expenditures so you can easily plug figures into the relevant bits of Self Assessment form come the end of the financial year.
  • Having said that, the more complex your financial affairs are, the more worthwhile it is to have someone ‘in the know’ do it for you just for peace of mind.
  • I am able to complete and file Self Assessment Returns for Directors either as part of my Ltd Company accountancy packages, or just as a one-off.
  • Alternatively I can carry out a Self Assessment Check where people wish to do the leg work themselves but have someone ‘in the know’ cast an eye over the figures and inputs before they are submitted.
  • For costs of packages or one-off services see prices page of my website or contact me for information on services and how I may be able to assist you.

 

 

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