HM Revenue and Customs (HMRC) holds the right to investigate any practice’s tax returns when they feel it is necessary. After receiving a letter or phone call, you may have an idea why this is, or you could simply be randomly selected for assessment.
By carefully managing your tax returns, you can minimise the risk of issues arising, and be confident in the face of a random evaluation. To be prepared for the end of the tax year in April, there is no better time to ensure everything is in line. You may want to seek support from an independent financial adviser who will help you comb through your details, and find ways you can minimise your tax contributions legally, whilst remaining compliant.
Understanding an enquiry
The first thing to remember is that a HMRC compliance check does not automatically mean you are at fault. Something may trigger an investigation in order to ensure you are paying the right amount of tax at the correct time, receiving the right allowances and tax reliefs, or that the tax system is operating fairly. Ultimately, however, HMRC performs compliance checks to discourage tax evasion (different from tax efficiency) which is a primary reason for many being randomly selected, regardless of whether they are suspected of wrong doing.
A dental practice or practitioner could be called to provide information on their returns. If you have an accountant, they may be contacted instead. During a check, HMRC may request to visit the dental practice or an adviser’s office, or ask for you to visit them. Individuals have the right to be accompanied by an accountant or legal adviser during these visits. Promptly submitting information to HMRC is key, as it can allow the checks to progress smoothly, and avoids the risk of penalties that may result from resistance to share requested documents.
As with many facets of financial management in dentistry, it pays to be prepared. Putting the time aside to keep your records in order, or reaching out to advisers that can help, is paramount. Clinicians that do so will thank themselves should HMRC begin an enquiry.
HMRC has traditionally referred to two separate kinds of checks on a taxpaying business or individual; a ‘full enquiry’ would cover an entire return, whilst an ‘aspect enquiry’ may only need to look at one or two matters in particular. Despite this, in practice HMRC will always carry out a full enquiry into a return. Having all of your tax return assets on hand is important to remain prepared and informed.
Avoiding a compliance check
There is one trick to minimising the chance of a HMRC compliance check which, whilst not fool-proof, gives you peace of mind. In many ways, it's a lot like ‘avoiding’ dental problems; prevention is better than cure, and no shortcut will help you any more than completing your tax returns accurately.
Clinicians should ensure their paperwork is filed on time; a basic demand of compliance that can become troublesome. HMRC could be under the impression that a self-employed clinician who files their taxes late is also disorganised in other aspects of their business, raising eyebrows and prompting a potential check.
Many businesses will be interested in setting up tax efficient solutions that help them save money, potentially to reinvest back into the dental practice, whilst legally complying with their tax duties. Tax efficiency is not evasion, and should not prompt a HMRC compliance check. However, it is helpful to know the options available to you, and put them into place where appropriate.
Individual savings accounts (ISAs) are one potential option. Clinicians could save cash, or invest in stocks and shares, depending on their financial preferences. Clinicians can invest into these with tax-free benefits until they reach a government set ceiling, and will not pay Income Tax on the interest, and profits are free from Capital Gains Tax.
Similarly, HMRC provides tax relief on pension contributions up to an annual limit. Your chosen scheme can help you save the money you have earned, rewarding you down the line.
Dental professionals could seek insights from money4dentists, the independent financial advisers who are dedicated to supporting professionals in this unique profession. With business and self-employed tax returns often being a confusing process, the team can help you ensure your accounts are in order before submitting to HMRC. With tailored financial advice for self-employed dental professionals, it’s possible to choose tax efficient solutions that are HMRC compliant but valuable to your future.
HMRC carries out compliance checks regularly, and they can take months to complete. With the support of financial experts and accountants, dental professionals can be aptly prepared at a moment’s notice to support an enquiry to its completion.
References available on request.
For more information call 0845 345 5060 or visit www.money4dentists.com