Make Customs and Revenue payments less taxing in future
The 31st of July and January are deeply ingrained in most GP principals' minds. By these dates our tax and class 4 payments should have arrived in the Chancellor's coffers.
The pain of this time has increased in the last two years as the effects of pay rises have filtered through. A large proportion of full-time principals now pay Mr Brown more than £50,000 each year. How can this pain be eased?
First, make sure you have claimed all tax allowances for the last financial year. Your accountant should have provided a checklist of tax-deductible business expenses and personal allowances.
You may think you responded accurately but it is still worth spending a few minutes double checking that items such as car expenses and locum costs were reported correctly.
Second, consider this financial year. What tax-efficient plans can you make?
Some investments, such as enterprise allowances, carry more risk than traditional vehicles but have significant tax savings.
Investing in forestry also carries tax benefits. You should also consider share or property investments that you may cash in over the next few years.
It may be more tax efficient to use up your (and your spouse/partner's) annual capital gains allowance by spreading the cashing-in process over several years. Take expert advice before considering any of the above.
Third, turn you attention to financing your tax payments. Many years ago one of my partners had a novel method for paying his tax bill. He would live off his monthly drawings, making no provision for tax, and then hope that his June and December drawings were enough to pay his biannual tax bill.
How he managed to pay his grocery bills during those months I shall never know. Personally I could not live with such uncertainty!
Even though we are no longer responsible for our colleagues' tax payments, many practices still have a partners' tax account. Using accountant estimates, an agreed sum is deducted from monthly drawings and put in an interest-bearing account until required.
Most GPs prefer to save their own tax monthly and achieve better rates. By choosing one of the best-paying savings accounts it is currently possible to earn around 5 per cent gross interest.
Unfortunately as GPs are mostly higher-rate taxpayers, 40 per cent of interest earned is lost.
If your spouse/partner is a lower-rate taxpayer, consider saving in their name. If you do this, saving £4,000 per month will earn £960 net interest per year, £240 more than an account in your name.
Do not forget that a balancing payment is also due each January, often with minimal notice of the exact figure from your accountant. It is safer to save more, perhaps 5 per cent, on a regular basis to allow for this.
Finally, the most effective way to save for tax, short of moving abroad, is via an offset mortgage. In this way the full value of tax saving is set against your loan with no tax penalty.
So a £4,000 a month saving into a 5.5 per cent offset mortgage account will save you £1,320 a year off your mortgage. You might just manage a small smile as you write your tax cheque.
John Couch is a GP in Ashford,