Specialist medical accountant Vanessa Sanders, of Stanbridge Associates, says the forthcoming digitisation of tax (Making Tax Digital – MTD) will provide some excellent opportunities to improve the financial success of your private practice.
I have been advising hospital doctors with their business and individual tax affairs for 20 years and my experience shows me there is an opportunity here for those with true entrepreneurial grit to cut a swathe across the competition.
With the digital world descending onto income and corporation taxes, there is an opportunity to take hold of your finances to:
Understand your business;
Plan for financial security in the future;
Know what actions you can take to pay your taxes efficiently.
All this is immensely important for financial success.
This is the moment when independent practitioners can choose to stick their heads in the sand or review and improve their financial lives.
MTD for income tax will apply to the self-employed, partnerships and to all landlords receiving gross rental income above a threshold of £10,000, with effect from April 2024.
With effect from April 2025, general partnerships join in and then, from April 2026, MTD is likely to extend to all taxes.
This means digital record-keeping in real time, submitting returns to HM Revenue and Customs (HMRC) on a quarterly basis. No one will escape.
Currently, the law requires your records to be ‘adequate’ for the purposes of calculating your taxes.
Added to this, if you operate a corporate body – limited company or limited liability partnership – the Companies Act can hold you to account for being unable to support with accurate evidence the figures within your financial statements.
MTD offers HMRC the opportunity to check you have such records several times each year.
Unfortunately, there is no legal definition for adequate records, as each business is unique, but certainly you will need the following to be reconciled:
- Receipts for all expenses showing from where the payments were made;
- Credit card statements;
- Bank account statements – a dedicated account for the specific business entity;
- Invoices to income receipts;
- Trade receivables – a list of people owing monies to the business – to be maintained;
- Clearly defined withdrawals of cash from the business, including dividends, salaries, benefits, rents and re-imbursed expenses.
Many advisers are assisting currently with the transfer over to approved digital software packages before it becomes necessary into order to help iron-out any problems, as once you are in the realms of MTD, there is no soft landing from the stringent penalties.
Now is the time to consider how you run your business and whether there is room for improvement by streamlining your processes from patient-booking through to billing; debt-collection through to matching banked receipts; and profit through to decisions on saving or spending money.
Ask your accountant to perform a health check to help with how your records are maintained. If you wait until the last minute, you are likely to be charged accordingly.