Posts Tagged ‘finance’

Don’t get caught out by the tax man

By Michael Hankey - 14th March 2010 2:59 pm

Her Majesty’s Revenue and Customs (HMRC) regularly carries out concentrated operations on various groups of taxpayers whom they suspect of making incorrect returns of their income.

The latest group to come under the microscope are doctors and other medical professionals.

Under the Tax Health Plan, which was announced in January, doctors and dentists who have failed to disclose all their earnings have until 31 March 2010 to notify HMRC that they wish to make a disclosure. They then have a further three months to 30 June to submit it their disclosure and make full payment.

All the HMRC needs to begin an enquiry into an individual’s tax affairs is a ‘suspicion’ that there may be items declared incorrectly or not declared at all. It is then up to the taxpayer to prove them wrong - ‘innocent until proven guilty’ does not apply to HMRC enquiries.

It can get even worse. It is often the case that if something makes HMRC think a taxpayer does merit an enquiry, they will not stop at a single year. The current year and the six previous years can all be brought into consideration.  

You are probably now thinking that this could not apply to me but think again. Have you declared all the money you have received from cremation form fees and similar items? What about locum work? Have you declared all of it on your tax return?

 You might be thinking that because your locum agency work was taxed at source you are in the clear - think again, it might not be taxed at the correct rate leading to an underpayment of tax. Remember, this is your responsibility not the taxman’s nor the agency’s.

Come to that, have you completed tax returns? If you have extra income the responsibility is on you to make the declaration not upon HMRC to ask you to do so.

It isn’t all gloom and doom. There may be items which you can claim against your tax which you haven’t thought about. You may even have been overpaying tax in your main job which happens more than you might think.

If you are in any doubts at all, go and ask for some professional help in looking at your tax affairs - it could well soften any nasty shocks and you may even be pleasantly surprised!

Michael Hankey is the tax team manager at Simpson Burgess Nash. He can be contacted on michael.hankey@sbnca.com

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Doctors pose serious tax risk, says HMRC

Healthcare Republic - 10th March 2010 10:59 am

There are solid grounds for targeting doctors and dentists who have not declared all their income, according to HM Revenue and Customs (HMRC).

Speaking in London last week at a roundtable discussion about HMRC’s Tax Health Plan (THP), permanent secretary for tax Dave Hartnett said: “A common feature of all our campaigns is that they address a sector or a group where there is a serious tax risk.”

Under the THP, which was announced in January, doctors and dentists who have failed to disclose all their earnings have until 31 March 2010 to notify HMRC that they wish to make a disclosure. They then have a further three months to 30 June to submit it their disclosure and make full payment.

If they do this, the tax penalty they face is just 10% of the amount of tax owed. If they do not take the opportunity offered under the THP, Mr Hartnett said HMRC would go after the individuals concerned across the country, using the information that it holds about them.

Hartnett said: “We’ve risk assessed doctors and dentists and we’ve found there is a material level of non-compliance in various ways”. He added that HMRC had obtained data suggesting that the problem for this group was bigger than it had first thought.

Read more at Healthcare Republic.

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The Revenue offers tax-avoiding consultants an amnesty

By Mike Broad - 12th January 2010 8:00 pm

The economic downturn is having far reaching consequences for hospital doctors.

Not only is it threatening the funding of their services, and their pay rises, for years to come, it has also prompted an inquisition into their financial affairs.

In these lean times, Her Majesty’s Revenue and Customs (HMRC) are under pressure to collect as much of our taxes as possible. With the country’s mountainous debt, every penny is needed.

You might have thought that when tracking down those professionals who have underpaid tax, it would have initially focused its energies on those who helped to create the economic crisis. Bankers and city speculators would have been top of my list.

But the HMRC has taken a different approach. For some undisclosed reason, doctors are at the top of their list.  

It’s offering a three-week ‘amnesty’ - called a Tax Health Plan - for doctors who may have underpaid tax in the past to rectify the situation.

Doctors who make a voluntary disclosure will be asked to pay the full tax they owe and a penalty of up to 10% - and the Revenue has made it very clear these will be the best terms offered.

From April 2010, the HMRC will investigate doctors they believe have not declared their full income, dating back up to 20 years.

The Revenue is playing its cards close to its chest. As well as not explaining why its targeting doctors first, HMRC is also coy on the number of doctors involved in tax fraud (unofficial figures suggest 800) and the amount it wants to recover.

It briefly consulted with FIPO, BMA, HCSA and the GMC at the end of last year so one can surmise it is particularly interested in consultants with significant private practices.

Mike Wells, HMRC’s director of risk and intelligence, explained: “Our aim is to make it as easy as possible for people to come forward, make a full disclosure and benefit from the certainty of a reduced 10% penalty that HMRC is making available to those who qualify for this opportunity.

“From April we will be using the information at our disposal to investigate medical professionals who have not declared their full income. I therefore strongly urge any in this group who think they may have outstanding tax liabilities on their income to get in touch with HMRC and get their tax affairs in order simply and on the best available terms.

“This is the first step in enabling those with undisclosed income or gains to avoid a full tax investigation together with much higher penalties. The message is clear: contact us before we contact you.”

There’s no doubt the HMRC is adopting a tough approach. If a doctor has undeclared revenue, and ignores the Tax Health Plan, they could face an additional penalty ranging from 20% up to 100% of the tax due, and face an investigation that could result in criminal prosecution. It would question a doctor’s probity and be reported to the GMC.

If the doctor in question has evaded over £25,000 of tax, they will be ‘named and shamed’ with their details being published on the HMRC website and distributed on a press release to the media.

While not wishing to excuse any doctors who have avoided paying their tax and broken the law, the way HMRC is going about collecting unpaid taxes rom professionals raises some questions.

Consultants have from now until 31 March 2010 to register their intention to make a voluntary disclosure with HMRC. By 30 June, those who have registered must have made their disclosure as well as arrangements to pay all tax interest and penalties due.

That deadline doesn’t take into consideration the potential complexity of their financial arrangements, particularly if they’re contested. The HMRC will not give them any further time, which is unlikely to instil confidence in the process.

Furthermore, there is little information available for private practitioners working in group and partnership arrangements. Is one partner liable for the tax fiddling of another, for example?

It’s unacceptable that the Treasury loses an estimated £3bn a year in tax evasion, but is the HMRC offering enough of a carrot for tax evading doctors to come clean and save itself the time and effort of an investigation?

Some accountants and legal experts suggested the campaign will provide ‘easy pickings’ for the Treasury. Unlike bankers and lawyers, doctors don’t have the same level of expertise to call on in hiding any undeclared revenue.  

The line from representative organisations, such as the BMA and HCSA, is consistent and clear: doctors who have concerns should consult their financial advisers to ensure their tax affairs are in order.

Stephen Campion, chief executive of the HCSA, said: “We are grateful that at least HMRC consulted with us to alert us in advance but the HCSA is not associated with, or party to, this campaign.

“However we do advise all hospital consultants and senior doctors to be aware of the HMRC campaign and take professional financial advice if at all concerned about tax liability and accuracy of self-assessment.”

To make a disclosure ring HMRC on 0845 600 4508, or use the e-form available via the HMRC website.

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Start early when it comes to financial planning

By Justine Roberts - 11th December 2009 10:19 am

The start of a doctor’s career is unlikely to be a time where long term financial planning is at the top of the to-do list, however putting simple planning measures in place early can make a tremendous difference to longer term financial well being.

Doctors will begin their careers in different positions financially although some degree of debt is likely to feature for most. Once working, initial advice is to use some of this income to pay off debt and build up a solid base financially through short term savings. Cash ISA investments are ideal for this, they are tax free and from next tax year allow saving of up to £5,100 in each tax year.

A solid financial base is especially important in the current climate with lending restrictions meaning a substantial deposit is necessary to gain good terms for a mortgage.

The second consideration is protection, protecting oneself financially from the impact of ill health and protecting any financial dependants from the financial impact of premature death. All forms of health related cover is expensive whether this is income protection or critical illness. The costs of these covers increase the older one is when the cover is taken out. For this reason making proper provision early in a career will save a significant amount of money in the long term.

Income Protection provides a replacement income in the event of ill health and can be tied in to coordinate for when the NHS sick pay ceases. Doctors taking out income protection should be wary; many policies are arranged on a “reviewable basis” which means the insurer can increase premiums throughout a doctor’s career. These policies are generally cheaper at outset but are false economy in the longer term. A “guaranteed” policy ensures a known cost through life.

If disposable income is available, long term saving and pensions are at their most effective if they have time to grow. A rule of thumb for pension planning is that for every five years planning is deferred the amount that has to be invested is doubled. Even a small commitment in the early years can make a tremendous difference.

For savings the ideal vehicle is an equity ISA, this provides a tax efficient exposure to the stock market. For pensions, personal pensions provide flexibility to stop contributions if necessary as circumstances and commitments change and the additional pension from the NHS route provides a certain return, however aren’t as flexible.

Following these simple planning rules early in a doctor’s career will save money in the long term.

Justine Roberts is a director of Medical & Financial Ltd and can be contacted on 01400 250525 or at justine@medicalandfinancial.com

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Financial planning: revisit your income protection

By Justine Roberts - 6th October 2009 1:09 pm

Over the next couple of blogs we will pick up on each area of personal financial planning and why it’s important to keep it reviewed. We will start with income protection.

In the current economic climate it is more important than ever to ensure your finances are up to scratch, especially the protection areas of financial planning.

We recommend that all consultants review their financial circumstances at least annually, whether this be a meeting with an adviser or a quick chat on the phone. This is time well spent ensuring products have competitive charges and still meet with expectations.

Many protection policies are now cheaper than they were years ago, and as circumstances change the levels of cover required alter as well. This may mean a need for more cover if income and commitments have increased, or indeed sometimes amounts of cover need to be lowered if the children aren’t dependent or there are no costly school fees to cover. Many of us unwittingly risk our lifestyles by having inadequate, inappropriate or expensive policies.

Income protection provides a tax free income in the event of illness or incapacity if unable to work through illness or accident. There are limits on how much cover a consultant can have but private practice income can also be insured as well as NHS income.

Most consultants will have six months full pay and six months half pay from the NHS if incapacitated (providing they haven’t had a break in service for longer than one year in the past five years) and income protection can be dovetailed into these benefits. Many consultants will have first taken out income protection when they were a junior doctor; since then income and circumstances will have changed, not to mention the changes in April 2008 in the NHS Pension Scheme, with particular regard to retirement through ill health, which now means that most doctors who may need to claim on it in the future will be significantly worse off.

Income protection comes in two types, guaranteed and reviewable. A guaranteed policy provides certainty as premiums are fixed at outset, although premiums and benefits generally rise with inflation each year. Reviewable plans are generally cheaper at outset but are subject to periodic changes in premiums, often every five years when companies assess whether the premium being paid is sufficient to provide the cover. If the answer is ‘no’, then costs can rise significantly. Guaranteed policies are therefore preferred by most as they offer more security.

Not all companies will cover consultants for their own occupation, so choosing the correct company not just on cost but on their terms and conditions is paramount to try to ensure that any claim will be paid.

Justine Roberts is a director of Medical & Financial, which provides independent financial consultancy to doctors. Contact her at Justine@medicalandfinancial.com, or visit www.medicalandfinancial.com for more information.

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Employing your spouse in your private practice

By John O'Leary - 14th July 2009 7:24 am

The logic behind employing your spouse in your private practice is often sound - if you look at a couple as a whole, you are likely to pay less tax if you can spread the income between you both so as to utilise two sets of personal allowances and basic rate tax bands.

If you are a high earning couple, for example married consultants both on 40% or 50% tax rates, there is little to be gained from going down this route, but for others it can be a useful planning tool.

If a spouse or civil partner is employed in the business, care must to be taken. It is important that their services can be justified (i.e. are they worth what they are paid). You cannot simply create a role on paper for your spouse and then pay a salary.

In practise, however, it is rare for the spouse of a consultant not to help out to some degree - they may well perform receptionist/secretarial duties, help with banking matters, do a spot of bookkeeping etc. Such services should be rewarded with a reasonable wage.

Another issue concerns payment arrangements. Far too often a spouse will perform a vital role in the practice, be paid a reasonable wage via the PAYE scheme, but because the payments have not been handled correctly the consultant will be denied the expected tax relief.

It is vital that the wages of a spouse are paid by standing order into an account in your spouse’s name. Should your payments be made into a joint account or be made in cash, HMRC have the power to treat the payments as not having been made and can deny you the appropriate tax relief.

If the payments are less than the personal allowance (currently £6,475), there is no need to set up a PAYE scheme as long as your spouse does not have another job. Should their salary be greater than the allowance or if it is possible to obtain NIC credits for the spouse, you will need to register with HMRC and go through all of the PAYE hoops regarding tax, National Insurance, end of year returns etc. In practice many consultants simply get their accountants or a payroll bureau to relieve them of the hassle.

It is not uncommon for the services of a spouse or partner to command a salary in excess of the tax and national insurance thresholds. When this happens, the downside is often that national insurance (paid both by the employee and the employer) leaves the couple worse off than if they had paid a low salary.

There are ways around such issues, for example through the creation of a partnership (there is a lot of misunderstanding about partnerships – many accountants will say that husband and wife partnerships will be attacked by HMRC, whereas if things are handled properly you should have no problems).

For the majority of consultants, utilising their spouse in the practice is a practical way to save tax – but make sure that you do not get caught out by the small print.

John O’Leary is head of medical taxation at Sheen Stickland LLP. Contact him on joleary@sheen-stickland.co.uk or 01420 83700.

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