When compiling your list of New Year’s resolutions, the chances are that improving your personal finances may trail behind more common goals such as ‘exercising more’ and ‘drinking less’. But as we all know, identifying what we’d like to change is the easy part, actually sticking to it for a sustained period has been proven to be extremely difficult.
However, before making and breaking your New Year’s resolutions for 2018, don’t be so quick to give in when it comes to better managing your money, particularly around taxes if you are self-employed. It is estimated that some dentists typically pay around 10% too much tax through a combination of receiving poor advice and failing to get a tighter grip of their financial affairs.
The following top five tips will help you to ease the pressure of planning and managing your tax obligations, in addition to ensuring you don’t miss out on income that is rightfully yours.
- Understand the tax system – some dentists can struggle with the financial transition to being self-employed, especially new associates who could have up to 22 months between commencement of their position and paying their first tax bill, which is likely to be significant. Tax returns are made up to 5th April each year and are due the following January. You pay tax based on your profits which are compiled based on your income minus your business expenses.
- Appoint an experienced accountant – specialist dental accountants help dentists to more easily understand and plan for their tax liabilities when embarking on self-employment. This extends to advising when you need to pay tax to ensure you don’t miss any deadlines, what financial records you need to keep and ensuring you claim all the tax reliefs available.
- Keep your financial records in order – maintaining detailed and accurate financial records is an important step towards enabling you to manage, spend and invest your money more wisely. For tax purposes, financial records relating to your income, earnings and business expenditure must be kept for seven years so keep an up-to-date file of invoices, bills and receipts. In addition, make sure you record details relating to any pension contributions and gift aid donations as this information is also required for your tax return.
- Know what you can claim for – many dentists miss out on claiming all of the tax deductible expenses they are entitled to which relate to them doing their job and end up overpaying their tax. If you are self-employed, you can claim tax relief on expenses including professional membership fees and subscriptions (BMA, GDC, etc), tools and specialist dental equipment, as well as sales and marketing materials such as business cards. In addition, you can claim for business mileage or fuel, excluding commuting to your normal place of work.
- Spread the cost of your liabilities – the 31st January and 31st July self-assessment tax payment deadlines can cause sleepless nights for individuals who are concerned about the impact this will place on their personal finances. Alternative finance providers offer funding for tax bills and other short-term working capital solutions to enable dentists to preserve cash flow without compromising their existing banking lines. Unsecured loan facilities allow you to spread the cost of tax liabilities in a flexible way over a term of six or 12 months, plus those who are pushed for time can easily apply for funding online in seconds.
Specialist lenders to the dental sector, such as Wesleyan Bank, also offer step-by-step support to assist dentists at every stage of their careers. Tailored solutions include asset finance to support investment in new equipment and technology, as well as long-term loans for acquiring a dental practice, partner buy-in/outs and commercial mortgages.
While HMRC’s slogan that tax ‘doesn’t have to be taxing’ may be something of a pipedream for time pressured dentists, taking a proactive approach to financial management and enlisting the help of trusted specialists will allow you to have a more prosperous 2018.
For advice and further information about self-assessment tax returns, click here.