If you’re a director of a company and wondering if you need to file a tax return, good news! The HMRC has recently clarified its guidance on the matter. According to the updated guidance, if all of a director’s income is taxed at source and there is no further tax to pay, they do not have to register for and file a self-assessment return. This is particularly relevant for directors who are taxed under PAYE. However, if a director receives a notice to file a return and has no other taxable income to report, they can request for the notice to be withdrawn. It’s important to comply with these guidelines, as late filing penalties may apply. This article is all about completing and submitting company director self assessment tax return by those who are required to do so.
Register as a director
Registration with HMRC is the first step in completing your company director self assessment tax return. As a director, you are most likely to be required to register for self assessment if you have any other taxable income (besides your PAYE income) or if you receive a notice to file a tax return.
To register for director self assessment, you will need to notify HMRC that you are now a director by filling out Form SA1. This can be done online through the HMRC website or by calling their helpline. Once you have registered, you will receive a Unique Taxpayer Reference (UTR) number, which is a unique identifier for your tax affairs.
It is important to keep track of important deadlines related to your self-employment, such as the deadline for submitting your tax return and making any necessary payments. Failure to meet these deadlines can result in penalties, so it is crucial to stay organized and keep track of all relevant dates.
Gather Relevant Information for your director self assessment
Before you can start completing your director’s self-assessment tax return, you will need to gather all the relevant information. This includes collecting your personal information, such as your National Insurance number and UTR number, as well as your company’s name and PAYE reference number.
To accurately report your income and expenses, you will need to obtain documentation for all sources of income and expenses. This can include bank statements, dividend vouchers, and any other relevant financial documents. It is important to keep thorough records and retain these documents for future reference.
Additionally, you should accumulate any relevant tax forms, such as P60s or P11Ds, which provide information about your employment and taxable benefits. These forms will help ensure that you accurately report all income and claim any eligible allowances and deductions.
Calculate Director’s Income
Calculating your director’s income is a crucial step in completing your director self assessment tax return. Start by determining your salary from the company. This includes any regular payments you receive as a director, such as a salary or directors’ fees and bonuses.
Next, consider any other sources of income you have that need to be included in your tax return. This can include income from rental properties, investments, or freelance work outside of your director role. It is important to account for all sources of income to ensure accurate reporting.
Additionally, consider any taxable benefits you may have received as a director. This can include benefits such as a company car, medical insurance, or accommodations. These benefits are subject to taxation and must be included in your tax return.
Compile Director’s Expenses
Identifying and organizing your expenses as a director is an essential step in completing your self-assessment tax return. Start by identifying which expenses are allowable deductions according to HMRC guidelines. Allowable expenses are those that are incurred solely for business purposes and are necessary for carrying out your duties as a director.
Organize and categorize your expenses to make the process of reporting them in your tax return easier. Common categories for director’s expenses include travel and accommodation, office supplies, professional development, and subscriptions to professional bodies. Be sure to properly allocate each expense to the correct category for accurate reporting.
It is important to obtain proof of your expenses, such as receipts or invoices, to substantiate your claims. This documentation will serve as evidence in case of an investigation by HMRC, so make sure to keep accurate records and retain these documents for a minimum of six years.
Calculate the total deductible amount by adding up all the allowable expenses. This will help reduce your taxable income and potentially lower your tax liabilities.
Declare Dividends
As a director, any dividends you receive are taxable and must be declared in your self-assessment tax return. Dividends are a share of a company’s profits distributed to its shareholders. If you are a shareholder as well as a director, you may receive them if the company is profitable.
To accurately report your dividend income, start by understanding how dividend taxation works. Dividends are subject to different tax rates compared to other types of income, such as salary or interest. It is important to calculate your dividend income correctly. Include your dividends in the tax return under the appropriate section, usually labelled “Additional Income.” This will ensure that your dividend income is properly accounted for and taxed accordingly.
Claim Allowances
Researching and claiming available tax allowances is another important step in completing your director self assessment tax return. Tax allowances are deductions that can be applied to reduce your taxable income and potentially lower your tax liabilities.
Start by researching the available tax allowances that you may be eligible for. Common allowances for directors include the Personal Allowance, which is the amount you can earn before you start paying income tax, and the Marriage Allowance, which allows married couples or civil partners to transfer a portion of their Personal Allowance to their partner.
Determine your eligibility for each allowance and make sure to include them in the relevant sections of your tax return. Claiming the correct allowances can help reduce your overall tax liabilities.
Complete the Self-Assessment Form
Completing the self-assessment form is the core step in the process of filing your director’s tax return. Start by accessing the online tax return system provided by HMRC. This online platform allows you to complete and submit your tax return electronically, making the process faster and more convenient.
Enter your personal and company information accurately and provide all the necessary details of your income and expenses. Make sure to include any dividends, allowances, and additional income in their respective sections. Double-check your entries to ensure accuracy and completeness.
Use the additional information boxes if necessary. Depending on the complexity of your financial situation, you may need to complete additional information boxes to provide more detailed information or report certain types of income or expenses. These boxes can be found in many sections of the online tax return system.
Reviewing and Double-Checking
Thoroughly reviewing your completed tax return is crucial to ensure accuracy and avoid any mistakes or omissions. Take the time to go through each section and cross-check the information for accuracy. Check for missing or inaccurate details, such as incorrect figures or overlooked income or expenses.
Double-check that all income has been declared and that all allowable expenses have been accounted for. Look for any inconsistencies or errors that may trigger an alert from HMRC and potentially lead to penalties or further investigations.
It is also a good practice to compare your current tax return with the previous year’s return to identify any significant changes or discrepancies in your financial situation. This will help you ensure that your tax return is consistent over time and that all relevant information has been included.
Submitting the Tax Return
Once you have thoroughly reviewed and double-checked your tax return, it is time to submit it to HMRC. If you are using the online tax return system, you can submit your return electronically with just a few clicks.
Make sure to submit your tax return before the deadline to avoid penalties. January 31, is the deadline for submitting your company director self assessment tax return. Late filing can result in financial penalties, so it is important to meet the deadline and file your return on time.
Upon submission, you will receive an email confirmation from HMRC. Keep this confirmation for your records as proof that you have filed your tax return. It is also advisable to retain a copy of your tax return and any supporting documentation for future reference or in case of a HMRC investigation.
Keeping Records
Maintaining accurate financial records is essential for successfully completing your director’s self-assessment tax return. Keep organized and store all important documents, such as bank statements, receipts, tax forms, and business-related records. This will ensure that you have the necessary documentation to support your claims and comply with HMRC regulations.
Organize your records systematically, such as by year or category, to make retrieval and referencing easier. Digital record-keeping can be a convenient option, as it allows for easy search and retrieval of documents. However, make sure to keep backups of your digital records to prevent any loss of data.
Retain your financial records for a minimum of six years. HMRC has the right to review your tax affairs within this time period, so it is important to keep your records accessible and in good order. Failure to provide accurate records when requested by HMRC can result in financial penalties or further investigations.
In cases where the completion of your company director self assessment tax return becomes complex or overwhelming, seeking professional help may be necessary. Tax accountants or other financial professionals can assist you in properly completing and submitting your tax return, ensuring compliance with tax law and minimizing the risk of penalties or disputes.
In conclusion, completing your directors self-assessment tax return may seem like a daunting task, but by following the steps outlined in this article, you can navigate the process with confidence. Remember to register as an individual director, gather all relevant information, accurately calculate your income and expenses, and claim any eligible allowances. Complete the self-assessment form with care, thoroughly review all details, and submit it before the deadline. And finally, keep accurate financial records to satisfy HMRC requirements and ensure a smooth tax return process. By taking these steps and staying organized, you can fulfil your obligations as a director and maintain compliance with tax law.