As we move into 2021 little is certain apart from death and taxes. We’re expecting more than usual of both, the latter because our collective insurance policy with the state has paid out so our premium is going up. Rightly or wrongly, many people claimed something novel over the past year, whether it was a business grant, furlough, government backed loan or whatever else — there were scant checks in place. It’s not fair of course, and some people fell through the gaps, losing their livelihood and savings, or their health because they couldn’t be seen for non-Covid illness.
The first budget in a long time comes on March 3. Everyone expects tax rises but we don’t know where. There’s been talk of a one off tax on the super rich to balance the books. However it comes, the net effect will be that it is harder to prosper. So what can you do about it? The first thing is to get us or someone else with proven credentials as a tax advisor to do a review of your tax position. You may think you know what your tax position is but there may be elements you’ve overlooked that could save you a significant amount of money. Most associates and practice owners we speak to for the first time still haven’t done this.
For example, if you’re an associate saving up a deposit to buy a practice, have you thought about buying the practice as a limited company? That would mean you don’t have to pay tax on the money you’re saving. If you are a practice owner, there is probably something you could do to be more tax efficient. True, it’s more complicated these days because HMRC has been closing in on independent business owners for a while, but that just means the conversations we have with our clients are more bespoke.
The main thing is to take action. Doing nothing will guarantee you don’t improve your tax situation, which will leave you even more exposed in a difficult trading year. It’s human nature to avoid confronting things we don’t feel confident about, and tax is surely one of those things. If you feel you could probably save tax but don’t know the right action to take, your natural response is going to be to do nothing. You won’t gain anything but neither will you risk losing anything, which is typical of how we act as a result of the cognitive bias known as loss aversion.
It’s this fear of getting it wrong that can paralyse us. Paralysis is generally worse than making a move of some kind and it’s why a basic element of military tactics in the field has remained constant for millennia: set your perimeter and patrol beyond it. Don’t sit and wait like a prey animal. Go and find your enemy and destroy him. You have to pick your battles though. You are busy, so if you have an hour spare today do you want to spend it on the phone waiting to get through to your car insurer so they don’t auto-renew your policy and rip you off by £100, or would you rather spend it on the phone to an accountant, possibly discovering how you might save £10,000 in tax?
There are enough aggravating details of modern life — all those suppliers that stiff you if you don’t keep an eye on them; internet, insurance, phone contracts, finance, building maintenance — and you can easily use up your time trying to make it all perfect. But as soon as you accept that you’re not going to be able to do it all perfectly, and you don’t have to, then you might see the wood for the trees. Don’t worry about doing anything perfectly. Just make sure you do the big things good enough.