Which directors need to file a Self Assessment

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Not all directors of a UK limited company must file a self-assessment return to HMRC. It depends on individual circumstances. This article outlines which directors do and which do not need to file.

Firstly, you will need to know if you are a UK resident, UK domiciled or both. The following article describes the differences between the two.

 

Domicile

You are domiciled in the country in which you have your permanent home or which you consider your real home however, domicile is not the same as residency or nationality. Under UK law, an individual cannot have more than one current domicile.

Generally, your domicile of origin is your country of birth until you move permanently and change your domicile of choice. If you are a foreign national moving to the UK for the first time and you do not intend to remain in the UK permanently then it is likely you are foreign domiciled.

 

Residence

Residency is generally where you live. An individual can have more than one residence, such as a second home or your parents’ home as well as your own. HMRC have an official online test which you can use to determine your residency, you can find this here.

 

Directors – UK resident and UK domicile

A UK national who becomes a director of a UK company and is a UK tax resident may have to report a self-assessment annually to HMRC. Below we will consider each different scenario and whether a return is required or not:

 

No income from the limited company (No salary or dividends)

  • There is no requirement for a self-assessment
  • HMRC may request for a return to be filed. If this is the case, HMRC will need to be contacted to remove the requirement.
  • If HMRC issue a return, they may insist for it to be filed before the requirement is removed. In this case a nil return can be filed.

 

Director’s salary reported through PAYE only (No dividends)

  • There is no requirement for a self-assessment as all income is reported through PAYE.
  • HMRC may request for a return to be filed. If this is the case, HMRC will need to be contacted to remove the requirement.
  • If HMRC issue a return, they may insist for it to be filed before the requirement is removed.

 

Directors who receive other income such as dividends which are not taxed at source.

  • A self-assessment will be required to report the dividend income.

 

Worldwide Income

  • Reported and taxed on UK self-assessment.

 

Directors – UK resident and non-domicile

A UK resident who is non-domicile will follow the same guidance as the UK resident and UK domicile directors.

The key difference when reporting a self-assessment for non-domicile residents is how their worldwide income is taxed.

 

Arising basis

Most individuals who are resident in the UK are taxable on the arising basis and pay tax on their worldwide income and gains. So, on the arising basis, the foreign income of UK residents is charged to tax in the year in which it arises overseas. For example, an employee is taxed on the full amount of earnings from a foreign employment for the tax year. Likewise, any capital gains are subject to UK tax in the tax year in which the gain accrues. In most cases that is the year in which the asset is disposed of.

 

Remittance basis

The remittance basis provides what may be viewed as a ‘deferral’ of the UK tax charge in respect of foreign income and gains. That is, there is no charge when these foreign income or gains arise or accrue.

Instead, foreign income and gains are only taxed in the UK when they, or amounts ‘in respect of’ or amounts ‘representing’ those income or gains, are ‘remitted’ to the UK. If foreign income and gains remain offshore and are never regarded as remitted to the UK, the tax charge is effectively deferred indefinitely.

As long as they meet the status criteria (refer to RDRM32010), individuals can decide on a year-by-year basis whether to use the remittance basis. If they choose not to use the remittance basis, the arising basis will apply. Foreign income and gains are remitted to the UK if:

  • They are brought to, received in or used in the UK (refer to RDRM33100)
  • A service is provided in the UK which is paid for overseas using foreign income or gains (refer to RDRM33100)
  • They are used overseas in respect of a relevant debt in the UK. In simple terms, a relevant debt is a debt that relates to property brought to or used in the UK, or a service provided in the UK (refer to RDRM33160)

 

Non UK residents

If a director is non-resident and has no UK income (director’s salary, property income etc.) then there is no requirement for a UK self-assessment.

A non-resident director has a number of options when deciding whether to take a salary from the company or not.

 

Option 1

No directors salary and all income taken as dividends (if they are also a shareholder) – dividends are taxed in the country the shareholder resides and therefore no self-assessment will be required.

 

Option 2

NT Tax code. A director can apply with HMRC for a NT tax code. This will allow them to report a director’s salary with no tax through the payroll. The director will need to investigate the tax rates in their country of residence and set the salary accordingly. TAP cannot advise on this and an accountant or tax advisor will need to be contacted in the country of residence.

The NT Tax code can only be applied for by the director and an interview must take place with HMRC – it is not always granted and is dealt with on a case-by-case basis.

 

Option 3

The directors can still have a director’s payroll processed. Our payroll team can run this for them but the client themselves would need to call HMRC and register for the payroll scheme over the phone. Due to them having no NI number, we are unable to register on their behalf.

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