Dr James, 7s:

There's been an increase to how much tax you pay within the uk of late, and this has hit us dentists especially hard. Here's the bad news. There's likely to be a little bit more of it on horizon, but it's not anything that we can't account for, and that's why I've got Mr Mike Brian with me today on the Dentists Who Invest podcast, specialist accountant to UK dentists. We're going to be talking about what those upcoming further changes are, what the tax gap is, how small to medium-sized businesses might be hit particularly hard and what we can do today to mitigate this. I'm also super excited today to announce a brand new feature for the Dentists Who Invest platform, and that is free verifiable CPD to all UK dentists who have enjoyed this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentists Who Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. So this episode is all about our tax strategy, especially going forwards into the year 2025, at the time of recording, which is March 2025. Well, a lot of this stuff that we're going to talk about today is not necessarily set in stone. It may shift around more things to be conscious of, and one thing we wanted to talk about today, Mike, was something called the tax gap right, absolutely, James.

Mike, 1m 37s:

Yeah, so let's crack straight on with that and define the tax gap for your listeners. Uh, the tax gap is something that you'll hear more and more with as time goes on because of the change in power from the Tories to Labour. Labour are very, very interested in reducing this tax gap, and the tax gap is basically the difference between what HMRC collect and what they expect to collect. So there's a shortfall of around about £40 billion a year in tax that HMRC aren't currently collecting. Now we all know that the government runs in a deficit. The deficit at the moment is about £130 billion a year. It's big, big figures we're talking about here. If they can close that tax gap, then they're going to be saving around about a third of that deficit. So it's absolutely huge from a government's perspective to look into this. And when we're looking at the tax gap, the main players in terms of taxes that's being missed, that aren't being collected, is income tax. So individuals so those out of it out there that are a sole trader, um will pay income tax and then corporation tax as well. So those individual sorry, those companies out there that are trading as a limited company um, equally it's about. It's about equal. It's about the tax gap about a third is from personal tax and a third is from corporation tax and the shortfall of the rest is mainly vat and some other excise taxes and stuff like that. Um, and what the labor government want to do is reduce that gap and their plan is to generate circa around six billion pounds a year in an increased revenue over the next five years whilst they're in power, by reducing that gap I see so high level.

Dr James, 3m 39s:

This is what we've got to watch out for. And then I suppose that spurs the next question how are they going to do that and what we've got to watch out for? And then I suppose that spurs the next question how are they going to do that and what we've got to watch out for?

Mike, 3m 46s:

yes, for sure. Now there will be people shouting from the rooftops of why don't you go after the amazons, the starbucks, the um, the googles and and various other people and um, frustratingly, for for those organizations, what they're doing is probably with inside the rules, and those big organizations have their own hmrc advisors that's literally on the phone ready to speak to them about anything dubious. But they're worldwide organizations. They have offices in ireland, they have offices in gibraltar and in other tax havens and therefore they can legitimately move money from the UK to cheaper tax jurisdictions by providing their marketing from that particular area or another thing. And if you look at Starbucks, I'm going to get this wrong, but I think their UK revenue might be something like 50 million quid if they paid one percent of their revenue to their accountants and tax advisors, their accountant and tax advisors getting a significant amount of money. And if your bog standard average dental practice that turns over what 500 grand to a million quid pays 1% of their turnover to their accountant and tax advisor, you just don't pay as much money. And therefore you are in this situation where people could say it's unfair. But when you look at facts, the tax gap is 60% funded by SMEs. Okay, so it's about 10% funded by big organizations, 10% by criminals, 10% by medium organizations, 10% by medium organisations, 10% by wealthy individuals, and then the other, the big big one, 60% of that £40 billion. What's that? £24 billion is not paid by SMEs, by smaller owner-managed businesses, by the likes of dentists, but also other industries, builders, plumbers, electricians, you name it. Any small kind of organisation.

Dr James, 5m 54s:

Uh-oh. So it's a pragmatic thing as much as anything else.

Mike, 5m 57s:

Yeah, low-hanging fruit, right. Who are you going to target If you've got a £40 billion deficit and you want to collect £6, £7 billion more a year, and of that, £24 billion is being the target? If you've got a 40 billion pound deficit and you want to collect six, seven billion pounds more a year, and of that, 24 billion is being, um, not paid by small organizations, you're going to go after the small organizations not the criminals, though they're good, they're good just let the criminals get away with it, but no, you know you're right. Um, of course they're going to look at the criminals, but 10 of 40 billion is 4 billion. So even if they got rid of all criminals, they're still not going to be collecting what they want to collect. So what they're going to do, um, they're going to employ people and the labor government have announced they're going to employ 5 000 hmrc inspectors, which is a lot of inspectors. I've done some maths earlier and if you pay an inspector 50 grand a year, that comes out at 250 million quid a year. They're spending in staff costs on these inspectors. Forget offices and insurance and various other things that go hand in hand with employing people. So it's a lot of money that they're investing in this area and undoubtedly they're they're investing in this area and unlike, and undoubtedly they're going to, they're going to be increasing inquiries into, into smes, into into your standard dental practices and um and dentists, facial, facial aesthetics clinics. You know there's some vat issues that may be low hanging fruit there for them to to think about attacking um, so some may say it's unfair, but actually, you know the stats say it's probably the right thing for them to do in order to collect this tax. The other thing they're introducing is making tax digital, which was supposed to come in in 2020, and then what do we have in 2020? Was that brexit? And then, I believe, was it coronavirus in 2020? It's fine, yeah, it was pre that then, because it was brexit. The first delay was brexit orientated. The second delay was covid delayed uh related. So I think they must have tried to bring this in in 2018, something like that, and it's been delayed. Well, it's going to come in April 2026, unless it gets delayed and, as James mentioned at the beginning, we're recording this mid-March and the spring budget hasn't been announced yet. So one of the reasons that I mean I can talk for my firm and the reason we're not shouting from the rooftops quite yet to our clients about this is because there's a sliver of hope that in the spring budget there just isn't the money or they haven't got the time in order to bring this out in April 2026. But it plans to come in and it was driven by. They spent billions of pounds on this making tax digital thing, by the way, so I don't think it will go away. At best, I think we can expect a delay. I was speaking to a Canadian dentist the other day who said Canada have been doing this for years. One of my clients returned from New Zealand not so long ago and said that New Zealand have been doing this for years as well common thing in other main countries, driven by the office of tax simplification and what they're doing is, instead of doing one annual tax return, they're going to want you to do six tax returns a year. So four quarterly tax returns, then an end of year adjustment in case your quarterly ones weren't quite accurate, and then still your annual tax return to mop up all of the other income that you have, like interest and dividends and property income and stuff like that. So going from one to six doesn't seem like it's simpler, but what it certainly will do is reduce inaccuracies and and one of the driving forces for smes and the tax gap is the the ability for them to hang their hats on this thing that any errors in their tax return is just a careless, inaccurate error. Oh sorry, I forgot to declare that particular money because it was paid to me in cash or because it was maybe straddling the gap of the year end and maybe you thought it was taxed last year or it should be taxed next year. So by making people doing it more regularly and fresher, they expect that people will be finding more accurate tax returns. The cynic in me makes me think that everyone's going to be needing to use accountancy software. Absolutely, that's factual. Everyone will need to be using this. By the way, companies this comes in later. So companies this doesn't come in until a few years from now. Sole traders it comes in april 26. Um in order to do this, you're going to need online software. We're an advocate of zero um and you get everyone on there. They then have to use their feed their bank account in with zero, so it gets automatic data collection. This is all going to be mandatory just because no one's going to have enough time to do quarterly tax returns. So we need to be using ai to get this information. Um, two things may come with that. Hmrc may ask for the tax to be paid quarterly. They haven't announced this. This is just me rumoring it. Um, it will speed up their collection, therefore give them more money to spend more quickly. Kind of makes sense to me. How much tax are you going to pay? Do you have the money? Why don't I pay it now? I think it might go into more of a digital invoicing system. So let's say I'm a dental practice. I'm going to tarnish the tradies with the same brush here Apologies if there's any tradesmen listening practice, I'm going to tarnish the tradies with the same brush here apologies, if there's any tradesmen listening. Um, I don't mean to pick on you, but let's say I was a dental practice owner and I wanted the reception painting and I paid someone a grand to paint my reception room. And what could happen in the future is when I want to claim that as a receipt in my account, I want to get tax relief on that grand, then that's going to automatically expect Joe Bloggs the painter to be recording £1,000 of income in his digital tax account. And if those two things don't agree, red flag HMRC inspector inquiry into Joe Bloggs. So it's just closing those possibilities. A lot of it's cash, of course it is. You know the pizza van outside that only takes cash unless you can't pay in cash, and then they get the card reader out. You know all those kind of cynical likely dodging tax. Uh, businesses is is where a lot of this money is lost. So to close that, I think um, well, it's on, it's on labor's radar, that's for sure understood.

Dr James, 12m 27s:

Well, that makes sense, because then there's no holes in the bucket, there's on, it's on labor's radar, that's for sure. Understood. Well, that makes sense, because then there's no holes in the bucket. There's no, there's nothing that's unaccounted for whatsoever. But that's, that's going to be no small flipping job right together.

Mike, 12m 36s:

Yeah it's going to be huge and it's going to be big brothers watching you right and all the people that don't like the fact that they can't go shopping and paying cash and all of those kind of things.

Dr James, 12m 44s:

this is just going to be another another in the coffin for a cashless economy and trying to make people go digital, and whether there's a revolution or not, Well, I think it's important to mention what you said just then, that what's upcoming or impending is on the personal tax side of things for the moment in business. Well, there's no date on that quite yet, but I'm sure that will be well confirmed.

Mike, 13m 13s:

So sole trader business tax is coming. We should be coming in april 26. Limited company will be delayed.

Dr James, 13m 22s:

Won't be probably till 28, I would have thought ah, good, and yeah, good, to make that super clear. Okay, brilliant, let's bring this conversation out of the ethereal and target it towards dentists a little bit more. Let's talk to the dentists in the audience and let's speak to the dentists and let's say, okay, cool, what can dentists implement in the here and now to account for this so that they're good?

Mike, 13m 47s:

Yeah absolutely so. Age-old terminology in accountancy and tax is that tax avoidance is perfectly legal and tax evasion is 100 illegal. So the advice to the listeners is to not to not to do anything dodgy. Don't put any expenses through your accounts that you, that you shouldn't claim. So you're um not use of home's office at home, but your home costs or your food and drink on your usual daily routine. Um your travel to Dubai to go on a one-day dental course, but stay out there for two weeks and enjoy the sunshine whilst you're there? That that wouldn't be allowed. So so it's. It's about ensuring your accounts and your tax return is accurate and that your expenses are accurate, but also to make sure you're using all of the available reliefs that are within the rules. So there will be dentists out there that don't maximize their expenses because they're scared or unsure of the rules. And there will be dentists out there that aren't utilizing their pension allowances. So if they have cash, they can put money into a pension they. There will be dentists out there that potentially should be trading as a limited company and are not currently. And then, if you're a limited company, think about your electric vehicles and your other tax reliefs that you can get in the company and and oppositely, actually there will be those that are companies when they should be sole traders because of the play on taxes and the increased company taxes and been around for a year or two now. And I think most importantly is to probably ensure that you have tax investigation subscription, which is a service that most, if not all, accountants offer and it's like an insurance against an HMRC inquiry. So headline is that even for the last 10 years that every uh three percent of every tax return gets gets inquired into means if you're a dentist working in the uk for 30 years, you're likely to have an inquiry at one point in 30 years. Factor the fact in that labor's going to ramp this up, you're even more likely to get an inquiry. Um, to make sure that that you're considering this service, it's not. It's not a lot of money. For sole traders it might be 200 quid a year. For limited companies it might be three, four hundred quid a year, something like that. And what we do for all of our clients are all our sole trade dental associate clients at humphrey and co is the standard fee actually already includes that insurance in there, that service in there.

Dr James, 16m 22s:

For other accountants it's an optional extra, so just make sure that you're you're covered and just out of interest, that insurance protects you from, uh like, let's say, you have to pay extra back with interest, right? That means that the accountant will pay that for you, is that right?

Mike, 16m 39s:

great question. Uh, simple answer is no. What actually it means is that your accountant's time in sitting with hmrc and going through the file, which normally in a full inquiry will cost somewhere between three and five grand plus v80, I would expect is covered by the insurance. So you don't pay anything to to your accountant if you get an inquiry. If hmrc find that something has been incorrect in your tax returns and therefore request that you pay more tax, then you still need to pay that to hmrc, plus interest, plus penalties. There isn't a product out there that will insure you for doing something dodgy with the tax man. You still need to pay that to HMRC, plus interest, plus penalties there isn't a product out there that will insure you for doing something dodgy with the taxman, unfortunately.

Dr James, 17m 32s:

I somehow sense that somebody's asked you that question before.

Mike, 17m 34s:

Have they Just to clarify that one. Yeah, yeah, yeah. Well, absolutely, of course they have. And you know I always go back to transparency with this. If something's gone wrong from the accountant and let's say, your indemnity insurance was one grand, but the accountant's put through an extra zero by mistake and put 10 grand through yeah, probably never going to happen, but just good for the example here. That's your accountant's fault, that's an error they've made, in which case, yeah, they should be paying the associated penalties and interest and stuff like that. Absolutely, hold your hands up there. But on the flip side, if the client had said my indemnity insurance is £10,000, I want you to include that we're allowed to rely on what our clients tell us. If we put £10,000 down for your indemnity insurance and actually transpires it should have been £1,000, well, that's your error, that's your fault. You'll be paying your tax and penalties and interest on that.

Dr James, 18m 23s:

Understood. I know that you like well, I'm going to presume that you like bookkeeping software, or it helps you with your clients, especially when they're limited companies. So I think it's fair to say, if you agree with me, it's only virtually every limited company should have. Well, certainly every dental practice should have bookkeeping software, right, Is that?

Mike, 18m 42s:

fair to say. Yeah, every dental practice needs zero or needs an equivalent of zero.

Dr James, 18m 47s:

Yeah, absolutely what I'm interested to know. Do you think that there's much of a case for having zero for somebody who is an associate but trading as a limited company, because they don't have nearly as many expenses coming out?

Mike, 19m 0s:

right now? No, I think it's. I think it's more cost than it is worth. Um worthwhile. We can get our hands on um restricted zero versions so we can get a what I coined a dental cash book version of zero that actually we presented at the bdia in 2016 for six quid a month. Right, the headline zero price now is something like 40 quid a month. So actually the cost side of things isn't the issue with these guys, it's just overkill. If I've got a limited company and I've got 12 times of income from one dental practice and 12 indemnity payments and one GDC payment and some other bits and pieces going out through the year, it's a simple business. You don't need to do vat returns. You're not going to need to do mtd income tax returns until a few years from now. So right now you may not, you may not want it, but certainly as soon as that income tax mtd for income tax comes in, everyone's going to need it and if you're a new dentist, then actually you might just want to get it now rather than get used to something and have to change it in a few years.