12 things every limited company director should know about reporting additional income via Self Assessment tax returns

You can be fined, prosecuted, or disqualified from being a company director if you fail to meet your legal responsibilities. As well as following the company rules (as set out in its articles of association), limited company…

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Last Updated: 25th March 2022   |   Created: 24th January 2022

You can be fined, prosecuted, or disqualified from being a company director if you fail to meet your legal responsibilities. As well as following the company rules (as set out in its articles of association), limited company directors must ensure that accurate company records are kept, and changes reported. Company accounts and a Corporation Tax return must be filed each year, with any due Corporation Tax paid.

LIMITED COMPANY DIRECTOR INCOME AND TAX

As you may already know, company directors can take money out of a limited company in various ways. Some company directors are paid all their income via the company payroll, which is subject to Income Tax and National Insurance contributions (NICs).

To minimise tax liability, many company directors receive a relatively modest salary via the company payroll (PAYE), just enough to qualify for state benefits, without having to pay Income Tax, because their earnings are below the Personal Allowance threshold. This income is normally supplemented by taxable share dividend payments (the basic rate of 8.75%, higher rate of 33.75% or additional rate of 39.35% are payable after the Dividend Allowance of £2,000 is reached for the 2022/23 tax year).

If you receive £2,000 to £10,000 a year in company share dividends, you can ask HMRC to change your tax code if you don’t want to report this income via a Self Assessment tax return. However, to report company share dividend payments of more than £10,000, you must register for Self Assessment and file a Self Assessment tax return (SA100).

But what if you’re a company director who hasn’t reported share dividend income previously? What if you paid all your salary via the company payroll (PAYE), but you’ve recently started to receive taxable income from other sources?

Here are 12 things you need to know about reporting taxable income via Self Assessment if you’re a company director.

DO I NEED TO REGISTER FOR SELF ASSESSMENT?

1. Directors are not classed as self-employed; they’re simply required to report additional taxable income via Self Assessment (the system HMRC uses to collect Income Tax).

2. If all your income is taxed at source, you don’t need to register for Self-Assessment and file a return. If HMRC has asked you to submit a Self Assessment tax return, but you have no additional taxable income to report, you can ask for the “notice to file” to be withdrawn.

3. You need to register for Self Assessment and file an SA100 tax return if, for example, you’re a company director and you:

  • earn taxable income from renting/letting out property
  • run a separate part-time, weekend or seasonal sole trader business
  • have earned taxable income from savings, investments, or dividends
  • received taxable payments from a pension
  • received Child Benefit and you or your partner’s annual income was more than £50,000
  • have earned income from abroad that’s taxable in the UK (eg renting out an overseas property while UK domiciled).

If you’re uncertain, HMRC provides an online tool that you can use to check whether you need to file a Self Assessment tax return.

HOW DO I REGISTER FOR SELF ASSESSMENT?

4. You register for Self Assessment online via the Government Gateway platform and then each year you (or someone acting on your behalf) must complete and file your Self Assessment tax return (SA100).

5. If you need to register, you must do so by 5 October following the end of the tax year (5 April) in which you earned the taxable additional income that you need to report. If you’ve registered previously, you just need to sign in to your existing account to file your SA100.

6. When registering for Self Assessment for the first time you’ll need to give your:

  • National Insurance number
  • full name (and any previous names)
  • current address (and when you moved in)
  • date of birth
  • gender
  • phone number and
  • email address.
  • You’ll also be asked whether you’ve registered previously for Self Assessment.

7. HMRC will then create an account for you. You’ll then receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days (21 if you’re based overseas). You’ll need your UTR to file your Self Assessment tax return. You’ll also then receive another letter with an account activation code. Once activated, you can file your tax return online at any time before the deadline.

8. If you need to file a Self Assessment tax return, you do so after the relevant tax year ends on 5 April and you have until the following 31 January to file it online (although it’s best to get it done sooner). There are penalties for late-filing and not reporting taxable income.

HOW MUCH TAX WILL YOU PAY?

9. You use the SA100 (and any supplementary forms required) to detail your earnings. HMRC uses this information, minus any allowances and reliefs you claim, to calculate your Income Tax and any National Insurance liabilities. HMRC will then send you a bill, which you pay directly.

10. If you earn income from renting out property, to reduce your Income Tax bill, you can claim a range of allowable expenses. Seeking professional advice can ensure that you claim all allowances and reliefs to which you’re entitled on all taxable income.

11. You use the SA102 supplementary pages to record your income from employment on your SA100 Tax Return. You must complete one for each employment or directorship, detailing all relevant pay, benefits, and employment expenses you wish to claim.

12. The standard tax-free Personal Allowance is £12,570 (2021/22 & 2022/23 tax year) if you earn less than £100,000 a year. The rates are different in Scotland, but in England and Wales:

  • If you earn between £12,571 and £50,270 a year, you will pay 20% Income Tax (Basic Rate) on your taxable income.
  • If you earn between £50,271 and £150,000 a year, you will pay 40% (Higher Rate) on your taxable income.
  • If you earn more than £150,000 a year, you will pay 45% Income Tax (Additional Rate) on your taxable income.

Rates are based on the 2021/22 & 2022/23 tax year.

The wages you earn from your company via its payroll will be added to other taxable income to determine your overall Income Tax liability once any allowances and reliefs are taken into account.

As a company directors, we appreciate how little time you have to spare. GoSimpleTax offers you an easier way to complete and file your Self Assessment tax return. And to ensure that your tax return is error-free and that you’re paying no more tax than necessary, why not get your Self Assessment tax return checked by one of our experts?

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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