This is a common issue for owner-managed companies across Telford and Shropshire. Directors often receive a small salary through payroll and then take dividends from the company. The salary may be taxed through PAYE, but dividends may still need to be reported.

What does HMRC say about directors?

HMRC’s director Self Assessment guidance confirms that directors may need to complete a Self Assessment tax return in some circumstances, including where they receive dividends or have other untaxed income.

This is more accurate than the old assumption that every director must always file. The current position depends on the facts.

A director who only receives PAYE salary and has no other tax issues may not always need a return. However, a director who receives dividends, rental income, foreign income, large savings interest or capital gains may need to file.

Dividends are a common trigger

Many small company directors take dividends as shareholders. HMRC explains how dividends should be reported in its guidance on tax on dividends.

If a director already files a Self Assessment return, dividend income must be included on that return. If they do not file a return, they may still need to tell HMRC about dividend income depending on the amount and tax due.

The company’s dividend records should match the director’s personal tax return. Dividend vouchers, board minutes and accounts should be consistent.

Salary through PAYE is not the full picture

A director’s salary is normally processed through PAYE. HMRC explains employer payroll obligations through PAYE for employers.

However, PAYE only deals with the salary and payroll benefits included in the system. It does not automatically report dividends, director loan benefits, rental income, foreign income or capital gains.

This is where directors can make mistakes. They assume that because the company runs payroll, their personal tax position is complete. That may not be true.

Other reasons a director may need a return

A director may need to file where they have rental income, self-employment income, partnership income, foreign income, taxable capital gains, high income child benefit issues, large savings income or untaxed benefits.

A director may also need to file if HMRC has issued a notice to file. If a notice has been issued, it should not be ignored. The director should either file the return or ask HMRC to withdraw the notice where appropriate.

Benefits and director loan accounts

Company benefits can create tax reporting duties. Examples may include company cars, medical insurance, beneficial loans or personal costs paid by the company.

Director loan accounts are also important. If a director takes money from the company and it is not salary, dividend, reimbursement or loan repayment, it may be posted to the director loan account. This can create company tax and personal tax issues.

A director’s personal return should be consistent with the company accounts and Corporation Tax return.

Our Corporation Tax support can help align company accounts, CT600, dividends and director loan accounts. Where a director needs personal filing, Self Assessment tax return support can help report salary, dividends, benefits and other income correctly.

Advisory note

A director’s tax position should be reviewed as a whole. It is not enough to ask whether the salary has gone through payroll.

The company records, dividend paperwork, director loan account, benefits and personal income should all be checked before deciding whether a return is needed.

Final thought

Company directors need to file a Self Assessment tax return in some cases, especially where they receive dividends, benefits or other untaxed income. The safest approach is to check the director’s full personal tax position and make sure it agrees with the company records.

Disclaimer: This article is general guidance only. A director’s filing position depends on salary, dividends, benefits, other income, HMRC notices and the company records.

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