Our team at Your Company Formations is often asked, "Do you need to register for self-assessment as a company director?"

While running a limited company offers flexibility and potential tax advantages, it also comes with additional responsibilities, including managing your tax obligations correctly. In this post, we will break down everything you need to know about self-assessment for company directors.

By the end, you will have a clear understanding of your Self Assessment requirements and can ensure you are following HMRC regulations.

Self-Assessment Requirements Beyond Salaries

While salaries are handled through PAYE, company directors and shareholders have other avenues for taking money from their limited company. However, these methods require self-assessment for tax purposes. Here is a breakdown:

• Expenses: Claimed expenses are not subject to PAYE, so the director-shareholder becomes responsible for declaring them on their Self-assessment return.
• Dividends: Shareholder dividends are not taxed at source, meaning directors must report and pay any applicable tax through self-assessment.
• Taxable Benefits: Company cars, private medical insurance, or other benefits might be taxable for directors. The value of these benefits needs to be declared on a Self-assessment return.
• Director's Loans: Borrowing money from the company can have tax implications. Depending on the amount and how it is repaid, directors might need to declare it on their Self Assessment tax return.

The Responsibility Lies with You:

In these scenarios, the director-shareholder becomes personally liable for ensuring their additional income is declared and taxed correctly. This means registering for self-assessment, filing an annual tax return, and paying any due tax directly to HMRC.

A more in-depth look at when you should register

Understanding your Self Assessment obligations as a company owner or director is crucial. Here is a clear breakdown of when registration is necessary:

No Self Assessment is needed if:

• Salary Only Income: If your sole income from the company is a director's salary taxed via PAYE, and you have no other untaxed income or benefits, registration is not required.
• Salary Below £150,000: As of the 2023/24 tax year, earning a salary under £150,000 through PAYE excludes the need for Self Assessment (previously £100,000 in 2022/23).

Self Assessment is required when:

Any Additional Income: Receiving any other form of taxable income or benefit from your company, in addition to or instead of a salary, triggers the need for Self Assessment.

This includes, but is not limited to:

• Dividends exceeding £10,000 annually
• Reimbursed allowable business expenses
• Director's loans
• Taxable benefits (company car etc.)
• Income from savings, investments, or trusts
• Income from UK property or land
• Pension income or charges
• Child Benefit (if exceeding the £50,000 income threshold)
• Income from outside the UK (including pensions)

High Salary Exception:

Remember, even with a salary as your primary income, registration is required if your total earnings for the 2023/24 tax year surpass £150,000, even if processed entirely through PAYE.

Off-Payroll Workers:

If you are an off-payroll worker (contractor) with a Student Loan to repay, you must also register for Self Assessment.

Unsure? Check with HMRC:

HMRC's online Self Assessment tool can help determine if registration and filing a return are necessary. Feel free to use this resource if you have doubts about your employment status.

Dividend Income and Self Assessment: Exceptions Explained

The £10,000 dividend allowance offers some flexibility for company owners. Here is how it impacts your Self Assessment needs:

• Below the Allowance: If your annual dividend income falls below the current £1,000 allowance (dropping to £500 in the 2024/25 tax year), you don't need to report it through Self Assessment. These dividends are tax-free.
• Between £1,001 and £10,000: For dividends exceeding the allowance but remaining under £10,000, you have an alternative to Self Assessment. You can contact HMRC and request a change to your tax code. This allows tax on your dividends to be deducted through your wages via PAYE, simplifying your tax filing process.

Who Should Consider a Tax Code Change?

This option might be suitable if:

• Your dividend income is modest and falls within this range.
• You have no other untaxed income to declare through Self Assessment.

Remember:

• Changing your tax code only applies to dividends. Other untaxed income still requires self-assessment filing.
• If your dividend income fluctuates or exceeds £10,000 in any year, you may need to adjust your tax code again or register for Self Assessment.

When deciding between a tax code change and Self-Assessment, Consider Your Overall Tax Situation. Consulting a tax advisor can help you determine the best approach for your specific circumstances.

Registering for Self Assessment: A Step-by-Step Guide

If you need to register for Self Assessment to handle your untaxed income. Here is a breakdown of the process:

1) Early registration is vital:

Register for Self-assessment as soon as possible after setting up your company. This simplifies tax filing and avoids potential penalties for late registration.

2) Understand your deadline:

The registration deadline is 5th October, after the end of the tax year in which you earned the untaxed income. For example, income earned in the 2023/24 tax year (ending 5th April 2024) requires registration by 5th October 2024.

3) Register online:

The process is straightforward and entirely online via HMRC. You will need a Government Gateway user ID and password. If you don't have one, create one on the sign-in page.

Required Information:

Once signed in, complete the online registration form with the following details:

• Full name
• Any previous names (including change dates)
• UK National Insurance number (if applicable)
• Date of birth
• Current home address (including overseas addresses)
• The date you moved to your current address
• Daytime telephone number
• Email address
• Reason for filing a tax return (select all applicable checkboxes)
• Dates you received untaxed income

4) Review and Submit:

After completing the form, review the information for accuracy. Make any necessary corrections before clicking "Submit" to finalise your registration.

5) Receiving Your Credentials:

• Activation Code: You will receive an activation code via mail within 7 working days (or 21 days for international addresses). Use this code to activate your Self-Assessment service on your newly created personal tax account (accessed through Government Gateway).
• Unique Taxpayer Reference (UTR): Another letter containing your UTR will arrive within 15 working days (or 21 days internationally). You can also find your UTR sooner by logging into your online tax account or using the HMRC app.

Important Note:

• Keep your UTR safe. It's a unique identifier used throughout your Self-assessment interactions with HMRC.
• Your personal UTR differs from your company's UTR.

Alternative Registration Method and Tax Return Deadlines

While online registration for Self Assessment is preferred, you can use form SA1 if online services are not an option. This form requires the same information as the online registration and needs to be printed and posted to HMRC using the address provided on the form itself.

Submitting Your Self-Assessment Tax Return:

• Once registered, you must submit a Self-Assessment tax return annually after the tax year ends. This return declares your taxable income and calculates the tax owed on your additional earnings.

Deadlines:

• Online Submission: If you file online, the deadline is 31st January following the tax year. This allows nearly ten months to complete and submit your return after the tax year concludes.

Remember: Penalties may apply for late registration or late filing of your tax return. Registering and filing well before the deadlines is advisable to avoid any complications.

Did you miss the Self self-assessment deadline? Here is What to Do

Life happens, and sometimes deadlines slip our minds. If you have missed the Self Assessment filing deadline, here are the steps to take:

1. File Your Return ASAP: Act promptly! Even if late, filing your return minimises potential penalties from HMRC.
2. Consider Penalties: Be prepared for potential late filing penalties. These increase the longer you delay.
3. Check for Payment Options: HMRC may offer payment plans if you struggle to settle the entire tax bill at once.

Regardless of filing timeliness, HMRC uses your return information to determine your tax liability. You will receive an official tax bill outlining the amount owed. You can also find this amount at the end of your completed Self Assessment tax return.

Completing Your Self-Assessment Tax Return Online

Once registered, filing your Self Assessment tax return online simplifies the process. Here is what you will need and how to proceed:

Required Information:

• Unique Taxpayer Reference (UTR): This unique identifier is crucial for accessing your Self Assessment account.
• National Insurance number: Your National Insurance number is required for tax purposes.
• Date of birth: Basic personal information needed for identification.
• Phone number: Ensure HMRC has a valid contact number for communication.

Income Details:

• Untaxed income details (dividends, expenses, benefits)
• Taxed earnings details (director's salary through PAYE)

Financial Records:

• Record of expenses and taxable benefits received
• Details of contributions to personal pensions or charities
• Student Loan or Postgraduate Loan repayment details

Step-by-Step Filing:

• Access Your Account: Log in to your Self Assessment tax account using your Government Gateway credentials.
• Start Your Return: Initiate the process for completing your Self-assessment tax return.
• Personal Information: Enter your details and answer questions to determine the necessary sections and supplementary forms.
• Complete Relevant Sections: Complete the appropriate sections for income types (dividends, interest, pensions), tax reliefs, and student loan repayments. Use the provided explanatory notes for each section.
• Supplementary Pages: Certain situations require additional forms. For example, if you receive a director's salary, complete supplementary page SA102 to report pay, taxable benefits, and employment expenses.

HMRC has created a video tutorial called "My First Self-Assessment Tax Return," which offers a helpful introduction to the filing process. The video can be watched on YouTube.

Can I send a Self-assessment tax return by post instead?

While online filing is highly encouraged, there are situations where filing a paper return might be necessary. If you cannot file online, contact HMRC to request a paper version of the SA100 tax return.

The deadline for submitting a paper return is 31st October, almost seven months after the tax year ends.

Despite the paper option, you should consider online filing because it offers significant advantages:

• Convenience: Online filing is generally faster and more straightforward than mailing a paper return.
• Efficiency: Real-time updates and calculations streamline the process.
• Extended Deadline: The online filing deadline (31st January) provides an additional three months compared to paper returns.

Start the process as early as possible.

We can all find ways to put things off, especially when we have a business to run, but don't wait until the deadline looms. Register for Self-assessment and submit your tax return as soon as possible after the tax year ends. Procrastination can lead to forgotten tasks and rushed filing, potentially causing errors and incorrect figures to be submitted. This can lead to paying too little or too much tax.

Give yourself ample time to gather all the necessary information. This includes keeping your paperwork and receipts organised throughout the year. With online filing, you can break down the process – start by entering some details and return to complete it later.

Benefits of Early Action:

• Reduced Stress: Avoid the anxiety of approaching deadlines.
• Fewer Errors: Rushing through the process increases the risk of mistakes.
• Avoid Penalties: Late filing or late payment can incur penalties.

Paying Your Tax Bill: Understanding What You Owe

Self Assessment introduces the responsibility of calculating and paying tax on your untaxed company income. Here is a breakdown of what to expect:

Tax Rates Based on Income:

The tax you owe through self-assessment depends on the type and amount of income you need to declare. Depending on its nature, this income might be subject to Income Tax, National Insurance contributions, or dividend tax.

Your total tax bill considers your combined annual income from all sources. This includes your company salary and other taxable income reported on your Self-assessment return. Based on this combined income, you will fall into one of the following tax bands:

• Basic Rate (20% Income Tax): Applies to earnings between £12,571 and £50,270
• Higher Rate (40% Income Tax): Applies to earnings between £50,271 and £125,140
• Additional Rate (45% Income Tax): Applies to earnings over £125,140

Personal Allowance: The first £12,570 of your annual income (from any source) is tax-free due to the Personal Allowance.

Dividend Tax: Dividend income exceeding your £1,000 allowance is subject to dividend tax, with rates based on your Income Tax band:

• Basic Rate Taxpayer: 8.75% tax on dividends
• Higher Rate Taxpayer: 33.75% tax on dividends
• Additional Rate Taxpayer: 39.35% tax on dividends

Lower Dividend Tax Rates: The lower dividend tax rates reflect that dividends are paid from company profits already taxed via Corporation Tax.

Understanding how different income types are taxed and how your combined income falls within the tax bands can help you estimate your potential tax bill. Remember, consulting a tax advisor can provide personalised guidance based on your specific circumstances.

When do I need to pay my tax bill?

Knowing when and how to settle your Self-assessment tax bill is crucial. Here is a breakdown of your options:

Payment Deadline:

If you owe additional tax through Self-Assessment, the payment deadline is 31st January following the end of the tax year. This coincides with the online tax return submission deadline.

Paying Your Bill:

You have two main options for settling your tax bill:

• Full Payment by Deadline: You can wait until the deadline and make a one-time lump sum payment for the entire amount owed.
• Budget Payment Plan: Consider setting up a Budget Payment Plan with HMRC for a more manageable approach. This allows you to spread your tax bill across the year through weekly or monthly instalments.

Exploring Budget Payment Plans:

• Budget Payment Plans can be established through your online Self-assessment tax account.
• Carefully assess your financial situation to determine if a payment plan best suits your needs.

Remember, late payments incur penalties. Opting for a Budget Payment Plan can help you avoid significant penalties by ensuring timely payments, even if you cannot pay the entire amount upfront.

What are the self-assessment deadlines?

Staying on top of Self-Assessment deadlines is essential to avoid penalties and interest charges from HMRC. Self-assessment tax returns cover income earned in the previous tax year (April to April), not the calendar year (January to December).

Key Deadlines:

• Registering for Self-Assessment: If you are new to Self-Assessment and have untaxed income for the 2023/24 tax year, register by 5th October 2024.

Filing Your Tax Return:

• Paper Returns: The deadline for submitting a paper Self Assessment tax return is 31st October 2024.
• Online Returns: File online for a more efficient process and enjoy a later deadline of 31st January 2025.
• Paying Your Tax Bill: Regardless of your filing method (paper or online), settle your tax bill in full by 31st January 2025.

HMRC Reminders:

• While HMRC may send reminders about filing and payment, it is your responsibility to be aware of deadlines.

Consequences of Missed Deadlines:

• Missing these deadlines can lead to penalties and interest charges for late payments.

Taking Action:

• Check Registration Status: If you need clarification on your registration requirement, consult HMRC or a tax advisor. Early registration avoids penalties.
• Consider Online Filing: Embrace the convenience and extended deadline of online filing compared to paper returns.
• Plan for Payment: Factor in your tax bill when budgeting. Consider setting aside funds or exploring a Budget Payment Plan with HMRC to avoid late payment penalties.

By marking these deadlines on your calendar and taking proactive steps, you can easily navigate Self-assessment.

Getting assistance with Self Assessment

Here is a breakdown of the various resources available to help you:

HMRC Support:

• General Inquiries: Contact HMRC directly for any questions about Self Assessment.
• Learning Resources: Utilise HMRC's online resources, including informative videos, webinars, and helpful guides on different income types.
• Digital Assistant: HMRC's digital assistant can offer basic assistance with your online tax account.
• Technical Help: Are you encountering technical difficulties with your online account? HMRC provides dedicated technical support.
• Help Sheets: Download informative Self Assessment helpsheets from the HMRC website.

You should consider appointing a qualified accountant or tax agent for professional guidance. They can help you structure your income for optimal tax efficiency and benefit from claiming all the reliefs and allowances you are entitled to. They can also ensure accurate and timely filing of your tax return.

Conclusion

While some company owners might be exempt from self-assessment, it is the most tax-efficient approach for the majority. Combining a moderate salary with dividend payments and claiming allowable expenses often creates significant tax benefits.

Taking Action Efficiently:

• Early Registration: If required, register for Self-Assessment well before the deadline. While the online registration process is simple, receiving your login credentials from HMRC takes a few weeks.
• Organised Record-Keeping: Gather all relevant information, paperwork, and receipts throughout the year to simplify tax return completion.
• Start Early, Minimise Stress: Familiarise yourself with HMRC's Self Assessment guidance and begin your return as soon as possible after the tax year ends. This will reduce last-minute stress and ensure accuracy.

We at Your Company Formations are here to help. Feel free to contact us if you have any questions about this post. Additionally, explore our help and advice centre for a wealth of resources on limited companies and valuable insights for UK businesses.

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