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A proprietary director is a ‘chargeable person’ for income tax purposes and is obliged to submit a director’s income tax return each year, notwithstanding the fact that all of his/her income may have been taxed at source under the PAYE system.
A “proprietary director” is defined as a director of a company who is the beneficial owner of, or is able either directly or indirectly to control, more than 15% of the ordinary share capital of the company.
A “non-proprietary director” is a director other than a proprietary director, who are not otherwise chargeable persons, and all of whose income, including fees, benefits, distributions, etc., is subject to tax directly or indirectly under PAYE are not required to file an annual return of income under self-assessment for any tax year in which they meet these conditions. This approach is subject to review.
In addition, they must comply with the self-assessment regime and may have a requirement to make payments on account to meet their preliminary tax requirements. Where these requirements are not met by the due date, the director is exposed to statutory interest which is calculated at a rate of approximately 8% per annum.
Exceptions to this general rule; for example, unpaid directors and non-proprietary directors are usually excluded from the obligation to file an annual director’s income tax return. In simple terms “proprietary director” means a director of a company who is the beneficial owner of or is able either directly or indirectly, to control more than 15% of the ordinary share capital of the company.
Late surcharge provisions apply if the director’s income tax return is not submitted by the due date. The surcharge will be either 5% if filed and paid within two months or 10% if filed and paid after two months of the filing deadline. The surcharge is calculated as a percentage of the director’s income tax liability for the relevant year before taking account of PAYE deducted from his salary by the company. This may result in a significant monetary penalty for the director even though no income tax may have been payable on filing the return for that period.
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