By Ross Martin, Accountancy Director at Hive Business.
If you’ve ever struggled to understand your tax bill please take comfort in the fact that it’s not you, it’s the taxman. Or, rather, it’s Parliament, because in 2009 we overtook India to pass the longest tax code on Earth at 11,520 pages — and that was just the beginning.
This year’s Finance Act came in at a whopping 649 pages long; only six have ever been over 600 pages and four of them were in the past five years. Yet somehow we only needed 625 new pages to see us through the entire 1950s.
Waving through reams of complex legislation is not a clever idea, and neither is it fair or helpful, which is why politicians keep promising to simplify tax. In 2007 George Osborne, as Shadow Chancellor, called for a “radical programme of tax reform to make the system simpler and fairer”. From 2010 he had six years in office to make those reforms, so why didn’t he?
Who knows, but the trend is plain to see and it’s safe to assume the blizzard of tax legislation will continue to thicken. The real question is how the blizzard is going to affect you. The short answer is you can expect to pay more tax unless you employ an accountant who is willing and able to keep digging a path through the blizzard for you.
Unfortunately though dentistry, for some reason, is saddled with an entire class of dull accountants who’s raison d’être is to let HMRC’s tax policy drive their clients’ commercial decisions. I keep coming across astounding and absurd examples of this.
A couple of months ago we got an enquiry from a dentist who wanted to save some tax. We talked, albeit a bit clunkily, but I teased out of him that he had, in fact, got a low tax bill. So what was the problem? A set of his accounts came through and lo and behold I discovered that the accountant had limited this man and his wife to draw just £80k a year each from their £300k earnings.
This arrangement would have been a good idea when they were earning less because it lets you limit your tax exposure to 20 per cent using a £10k salary each and monthly dividends of £2.5k each. But the situation had clearly outgrown the tactic and there were alternative ways to access these funds. How could they be told they weren’t allowed to access their own money? Madness.
This isn’t a one off; I know plenty of accountants who do dentists a disservice by looking away when they should be working hard to facilitate their clients’ goals. Half of them wouldn’t even be able to tell you what their clients’ personal and commercial goals were and so you can be sure that the more complicated tax law gets the more opportunities they’ll be missing for their clients.
At the moment I’m particularly coming across needless failures to help NHS practices by routing profits via another company (there are plenty of workarounds for this), I’m seeing bad advice on property (accountants seem happy to recommend incorporating property to dodge new tax changes, forgetting their clients will get stung down the line by capital gains taxes), and I’m seeing missed opportunities on life assurance and sick pay insurance which, if set up correctly, can be claimed back.
Dentists need accountants who support them by giving them options rather than reasons they can’t do things. In tax nothing is black and white and the real danger is you listen to HMRC and miss opportunities to claim tax back — take, for instance, this really basic example of claiming back fees for a Masters course. Don’t know about it? Don’t expect HMRC to go out of its way to tell you.
If you have a conservative accountant who isn’t interested at looking at different angles then you won’t be able to access alternative ways of paying less tax. The truth is HMRC guidance is not always correct and tax legislation, like any other area of law, is open to interpretation. Don’t put up with an accountant who helps them bury you get in touch on 01872 300232 or email us at hello@hivebusiness.co.uk.
