Taxation and finance for associates
This article was published in BDJ Student Autumn 2016
What do you need to know about tax and money matters? Sophie Kwiatkowski, an accountant with PFM Dental Accountancy, explains.
Now that you are self-employed, there is a lot to think about in terms of tax, records, expenses and more. Here, I give you an overview of the basics.
It is a legal requirement to keep business records as a self-employed sole trader and you can face penalties if a tax return is submitted with incorrect information. Get into the habit of accurate and regular bookkeeping. For proof of your income you need to keep your monthly payslips. As an associate, you will receive monthly schedules from your practice principal showing your monthly earnings as well as the deductions – such as lab bills and superannuation. The payslips will show both private and NHS work you undertake. You should record other information for your tax return such as bank interest, gift aid contributions and rental income.
The most commonly asked questions are regarding motor expenses. HMRC provides guidance on this area, which states that travel costs to and from your regular place of work are classed as private use, and are not allowable for tax purposes. Any other travel for business reasons can be claimed, and you then have the option to claim either 45 pence per mile, or a small percentage of all car costs. This is something that you should seek advice on.
Other common expenses that can be claimed include the costs of courses/training (including travel and subsistence), professional subscription costs, mobile telephone and the cost of protective and work clothing purchased. If you have to buy any dental materials or equipment, such as loupes, these are also allowable expenses.
Tax returns are made up to 5 April each year and the payments are due the following 31 January and 31 July. The January payment consists of the balance due for the previous year, as well as a payment on account as an advance towards the current tax year. The July payment is the second payment on account. There are benefits to getting your information to your accountants as close after the 5 April as you can, because finding out your tax liability sooner gives you more time to plan your finances. As a rule, I advise setting aside at least 35 per cent of self-employment income each month towards your tax bills. Another benefit to having your information organised early is that you can receive advice on your earnings that will count towards the annual NHS pension reconciliation.
The annual declaration of Net Pensionable Earnings (NPE) is required by 30 June each year. The figures you confirm annually are used to calculate your pension entitlement, it is therefore important to make sure that you understand the figure you are accepting and have received advice to make sure it reflects what you have earned. As a self- employed associate the responsibility lies with you to ensure that the figure showing is correct, and you should not confirm it until you are happy. This is a specialist area and I recommend you seek advice.
It’s best to get help from an accountancy firm that specialises in dentistry – such as PFM Dental Accountancy for whom I work. We are part of the PFM Dental group which has experts in financial planning, legal work and pensions.