Tax return: do I need to complete one?

Tax return: do I need to complete one?

Tax return – introduction

Not everyone needs to complete a tax return. For the tax year 2016/17 HMRC issued notices to around 11.8 million lucky ‘customers’. On the basis that there are around 66.5 million people in the UK. This is about 18% of the total population (including children and those who are retired.)

So who gets to join the self-assessment club – a club with few benefits unless you particularly enjoy a regular suspiciously brown envelope dropping on your door mat.

Tax return – who needs to file?

A taxpayer must file a tax return in the following circumstances:

1. If you have either income or capital gains to reportand you must also notify chargeability;
2. You are sent a notice to file a tax return by HMRC; or
3. You need to claim a refund or make some other claim for relief.

Income or capital gains to report

General

Where one has a new source of income or gains then it is necessary for you to notify HMRC of this fact. Following notification, you will then be sent a notice to file a tax return by HMRC. If you fail to notify HMRC of the new income or capital gains in a timely basis then you may suffer a penalty.

If you do not receive such a notice to file and you are aware of the income and gains then you can still file a tax return.

Examples of income or capital gains

As stated, an individual will have an obligation to notify HMRC where he or she has a new source of income and / or a capital gain. Examplles of such income and gains might be as follows:

• A capital gain on the disposal of an asset – eg a second property or a piece of art;
• You have started a new business as a sole trader;
• You have purchased some shares and have received dividend income and these do not fall within the personal allowances and / or dividend allowance; and / or
• You have any other untaxed income

Sent a notice to file

One clear rule is that If HMRC send you a notice to file a tax return in the post then you mustfile a tax return. This remains the case even where there is no income to report and you may receive a late filing penalty. Inaction is not an option.

Claiming a refund

Where you wish to claim a refund or make other forms of claims for relief then it may be necessary to complete a tax return. Claim a relief or allowance that must be made on a return.

The special case of a new Director

General

The formation of a new Company at Companies House usually triggers two things. Firstly, the company is sent a corporation tax number and will be in the system for corporation tax going forward.

Secondly, HMRC will also add a new director to the self-assessment club once a company is formed.

It is worth pointing out that there is no immediate requirement to set up a PAYE scheme unless you are receiving, say, a salary that is subject to PAYE or you receive benefits from the company.

Mohammed Salem Kadhem v HMRC [2017]

This decision of the First Tier Tribunal (“FTT”) runs counter to HMRC’s long-standing approach of insisting directors file a tax return regardless of whether the director had any income from the company and had tax payable.

The star of the show, Mr Kadhem, was appointed a director of Tadmor Property Services Ltd on 27 May 2014 and he submitted his tax return for 2014-2015 electronically on 21 September 2016 after receiving a penalty for failing to file.

However, he argued that he never received a notice from HMRC to file a tax return. HMRC asserted that, due to the fact he was a director, he should have registered for self-assessment and filed a tax return and that he was required to do so without any prompt from HMRC.

Mr Kadhem argued as he received no notice to file he was under no obligation to file a tax return.

The FTT ruled that in the taxpayer’s failure and that he had a reasonable excuse for not filing his tax return on the basis there was no evidence to suggest the appellant had received a notice to file a return.

Further, the FTT did not agree with HMRC’s assertion that as a company director is required to register for self-assessment and file a tax return each year without prompt or reminder from HMRC. The FTT could find no authority in Taxes Management Act 1970, s8(1) for HMRC taking this position.

If you need any help in filing your tax return or in relation to any other tax matters then please get in touch.