Follow up

HMRC guidance - Who needs to file a tax return?

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Kadhem v HMRC [2016] TC05929

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When is a tax return really required?

To return or not to return?

Knowing what is required in terms of self-assessment is essential in order to correctly submit returns for clients. The problem is that HMRC is constantly increasing the categories of people it says need to complete returns under self-assessment. HMRC’s current published guidance (see Follow up ) stipulates twelve circumstances in which a tax return must be filed. These include (among others):

• your client or their partner had income of over £50,000, and one of them claimed child benefit, i.e. where the family is subject to the higher income child benefit charge (HICBC)
• your client had income in excess of £100,000 - presumably because of the personal allowance abatement
• your client was a director, unless it was for a non-profit organisation and they received no pay of benefits.

HMRC guidance wrong?

A look at the legislation at s.7 Taxes Management Act 1970 , which is concerned with when a taxpayer is required to notify HMRC of their liability, i.e. to register for self-assessment, or reactivate a self-assessment account, raises questions over HMRC’s guidance. The section essentially says that if a person is chargeable to income or capital gains tax for any particular year and have not received a notice to file a tax return, they must notify HMRC unless certain conditions in s.7(3) are met.

S.7(3)(c) makes it clear that someone liable to the HICBC is definitely required by law to notify HMRC. However, there is nothing to suggest your client has to file a return solely due to their being a director (or solely because their income exceeds £100,000). By virtue of s.7(4) , it would appear the statutory position is that if all the tax due is correctly subjected to PAYE, there is no need to register for self-assessment. There is no mention of the word “director” anywhere.

Obligation?

It should be noted that if a notice to file a return is sent to your client, they have a statutory duty to file it - unless they successfully request that the return be cancelled. So what is the position for a director who has not received a notice to file? HMRC’s guidance says they have to file a return regardless. However, a First-tier Tribunal (FTT) decision suggests this is not correct.

In Kadhem v HMRC [2016] TC05929 (see Follow up ), Kadhem (K) had been appointed a director during 2014/15. He had registered for self-assessment, but had not received a notice to file for that year. HMRC insisted a notice was sent - but couldn’t show the address it had on record for K at the time. Nonetheless, it insisted that he had an obligation to file a return as a director even if a notice had not been received. It issued penalties of £1,300 for late filing. K appealed against the penalty, citing the fact that the Taxes Management Act 1970 does not require a return on the basis of being a director, and the fact there was doubt over whether a notice was issued. The FTT agreed that he had a reasonable excuse and allowed the appeal.

HMRC - Who needs to file a tax return?

Kadhem v HMRC [2016] TC05929