Practice finance diary, January: Get ahead now for next year's tax return
Many GPs prefer not to think about their tax bill, but putting it off can increase costs. Accountant Bob Senior offers tips on how to lessen the pain
Few GPs welcome paying their January tax but wise GPs send their information to their accountants months before the deadline. They know how much they owe and have set aside enough money.
Sadly not all GPs do this. An accountant might advise: ‘Given your income you need to save x% of everything you receive for tax’. This instruction might be misinterpreted. The GP might save x% of monthly drawings, but not of their QOF or end-of-year payments. A year on, their tax funds will be lacking.
Some GPs give their accountants all they need to prepare expenses and tax returns as soon as they can after the end of the tax year. Others leave it as late as they possibly can and are left scrabbling around at this time of year to provide the relevant information. Peculiarly enough, these GPs often say afterwards: ‘It really doesn’t take very long once you get started.’ While a GP who is slow to provide the necessary information may put their accountant under pressure to meet the 31 January tax return deadline, in reality the main person affected will be the GP. It is they who will face an unwelcome tax bill without much notice.
However, there are also ramifications for the whole partnership if one partner is late sending expenses information. This holds up completion of the partnership tax return, which can delay the finalisation of all the partners’ tax returns. Those well-organised partners who got their information in on time are likely to be justifiably irritated.
So how can a practice encourage a partner to sort out their affairs in a timely manner? Here are two examples of methods I have seen work.
One client requires partners to get professional expenses information to me by 30 June. In July, all the partners go out for dinner. If everyone has sent in their information, the bill is paid by the practice (disallowed for tax purposes, of course). If a partner has not sent in their information, the bill is passed to them.
The other method was more drastic. A GP client who normally has a blind spot about expenses excelled one year and got his information in on time. He had broken his leg and was on sick leave. Looking for diversion, he sorted out his paperwork. Predictably, he returned to his bad habits the following year.
Accountants take pride in filing tax returns on time and will pull out all the stops to make the deadline, even if the information does not come in until the last week in January. But their nerves will be worn to a frazzle; they will probably be paying overtime. The extra costs and aggravation will undoubtedly be reflected in their bills.
As the drive for cost efficiencies continues in 2013, GPs can avoid unnecessary charges by organising their tax paperwork in plenty of time.
Bob Senior is chair of the Association of Independent Specialist Medical Accountants and the head of medical services at RSM Tenon.