The old chestnut has finally been cracked! A tax tribunal has ruled that company directors are under no automatic obligation to file self-assessment tax returns (SATR), notwithstanding HMRC’s insistence that company directors must “register for Self Assessment and send a personal Self Assessment tax return every year”.
The Tribunal found that this “guidance does not have the force of law and the appellant was under no obligation to follow it”.
Case TC05929 between Mohammed Salem Kadhem (the appellant) and HMRC concerned an appeal by the appellant to overturn a £1,300 late-filing penalty imposed by HMRC under Schedule 55 of the Finance Act 2009. The appellant submitted:
“There is no legislation stating an individual has to file a tax return on the basis that they are director of a company. Tax returns are required to be submitted by individuals that receive income from several different sources. My only source of income is the (income subjected to) PAYE received as director of the company. The review officer in charge of my case claimed that as a director of a company I am required to complete a return and as proven above, this is evidently not the case. This is one of the reasons my appeal was rejected and I believe this is incorrect as well as unfair.”
He further submitted that he had never registered as self-employed and that HMRC had done so on his behalf without his knowledge – a point accepted by the Tribunal.
Needless to say, HMRC disagreed. It is worth mentioning that the appellant’s position is what many tax advisors have been advising for years.
In the Tribunal’s own words: “There are two issues for the Tribunal to determine.”
- Whether HMRC are correct in their submission that the appellant as a director of a company must submit a self-assessment tax return each year without prompt or reminder; and
- whether the appellant has reasonable excuse for his failure to submit his self-assessment tax return for the tax year 2014-2015.
Only the first point is of wider interest.
The Tribunal found that HMRC’s “guidance does not have the force of law and the appellant was under no obligation to follow it” and that the “guidance does not have the force of law and the appellant was under no obligation to follow it.”
It also confirmed that if HMRC specifically requests that an individual file a tax return, then the individual must do so: “if a person receives a notice to file a return he is under an obligation to file a return by the due date.” Authority for this is the Taxes Management Act 25 1970 Section 8.
This is confirmation is welcome as it provides legal certainty. This is not the first time that tax tribunals have taken issue with HMRC’s guidance. Indeed in the notorious VAT carousel fraud cases, HMRC itself attempted to distance itself from its own guidance claiming they held no legislative force. There is something to be said of the status of these “guides” as front line HMRC staff are unaware of their status and many a frustrated tax advisor is met with intransigence from case officers who cite these guides as authority.
While this decision does come from the lowest first-tier Tribunal, few tax experts expect an appeal given how weak HMRC’s case is. In some respects, for directors, an appeal would be preferable as the High Court would likely confirm the decision thereby firmly establishing the precedent.