Ten ways to ensure you are more tax-efficient
Accountant’s Clinic
As we start a new tax year, Julia Burn gives ten top accountancy things to consider for your private practice business.
1 Capital/fixed asset expenditure
With the super deduction and 100% first-year capital allowances available, it may be worthwhile spending money on capital equipment needed by the business before the accounting year-end rather than after it in order to bring forward the available tax relief.
For qualifying assets, the level of capital allowances available basically means that the cost incurred can be fully deducted – or in some cases enhanced – from the company profits before corporation tax is charged, therefore reducing the amount of tax payable.
2 Remuneration
For owner-managed businesses, it is essential that you have a discussion with your accountant to ascertain the most tax-efficient way to remunerate yourself.
These discussions should at least be had before the end of the tax year – 5 April each year – and also before the end of the business’s accounting year, if that is different.
If you are a director and shareholder in the business, it may be worthwhile taking a mixture of salary and dividends to make use of all available tax allowances and to benefit from the differences in tax rates.
Based on your total income, your accountant will be able to review the most tax-efficient way for you and the business to pay you your remuneration.
3Long-term contracts/work in progress
Contracts and treatment plans that span an accounting year-end need to be considered.
If a patient is receiving a long-term treatment, a discussion with your accountant should be had to understand when the income for that treatment should be recognised for accounting purposes, as it is unlikely to match when the invoices are actually raised.
The income recognition also affects the timing of any tax liability.
4Cash flow forecasts
Understanding your business’s cash-flow forecast and being able to anticipate when pinch points could occur is always an essential part of the management process.
This is even more important currently due to the nature of the economy and the requirement to have a tight handle on your company cash flow and to understand when funds are likely to flow both in and out.
Understanding the company’s debtor recoverability – that is to say, when customers pay and whether different types of customers, such as the self-payers and the insured, have different payment terms – plays a big part in building cash flow forecasts.
It is also important to understand whether there are cash restraints affecting the business that require a thorough review of costs to identify potential areas for cost-cutting.
5Tax liabilities
It is important to understand the timing of all tax liabilities, whether they relate to the business or you personally.
This will include corporation tax, which is based on the company accounting year-end profits and payable nine months after, but it also applies to when the practice is run as a partnership or sole practitioner. In all these cases, tax liabilities will be due on 31 January following the end of the tax year – 5 April – and potentially on 31 July following if you are required by HM Revenue and Customs to make payments on account.
Other tax payment dates to also be aware of are PAYE, National Insurance and VAT, where applicable. It is useful to diarise these to ensure there are no unwelcome surprises.
6Growth plans
Review growth plans and understand the resource requirements that this will require.
Will you need to employ more staff to achieve the growth plan, how much will this cost, how will this be funded and will there be any other ancillary costs – for example, will the business need more space?
What other additional costs may there be? When considering funding for the business, will new investors be required or will bank funding be needed?
7Succession planning
It is important to consider the company’s succession planning route.
When you retire, you may want to sell the business or there may be someone internally that will step into your shoes and continue the practice.
Whichever exit strategy you choose, you will need to discuss with your accountant to ensure that the strategy achieves the most tax-efficient route for you.
It is also important to understand early on what the potential tax consequences of a sale may be and to plan for this well in advance.
8Properties
Does the business own any properties? Are these being fully utilised? If – as many businesses have done as a result of Covid – there is an element of hybrid working, is there available space that could be sub-let?
9Accounting records
It is important to have accurate, timely accounting records to enable the business to run as efficiently as possible while you concentrate on your clients/patients.
Are you using the best software for your business? Is the booking and invoicing function fully integrated with the accounting package?
Is there anything that could be done to streamline the process and make real-time information available?
10Group practices
Where the practice is part of a group and there are any functions that can be centralised, consider ways to share costs. Are the different branches set up in the most tax-efficient way?
In summary, there are many factors for a business to consider regarding their finances and these are not just concentrating on the year-end accounts and tax prepared once a year.
Julia Burn (right) is a director at accountants Blick Rothenberg and part of the team that advises medical practitioners
