How many of us plan our finances and taxations well in advance? Not many, rather just a very small percentage of the entire population that understand the taxation documents and ways to minimise liabilities! The reason is our inability to understand the complications associated with it. We pay our taxes every year without even trying to understand if we paid the right amount or have paid more than what we actually owe. This only adds to our woes and leads to many more complexities.
Even though taxation documents look very complicated, it is important to know what we earn, how much we owe as tax to the government, and what are the ways to save tax. It is our money, and each and every one of us wants to save it for better things in life. However, due to lack of knowledge, we fail to take full advantage of the available choices to save and multiply our money. Our ignorance about the tax system leads us to many financial difficulties. So how do we minimise these difficulties?
Start Taking Interest in Taxation and Liabilities
Who does not love to have a good bank balance? Doesn’t it make us feel secure in the time of insecurities? And what if you don’t have good bank savings? Don’t you feel insecure thinking of future insecurities? You do, though money is not the solution of all problems, it does help us solve many problems in our life. So why not take interest in things which can actually help us add a few hundred pounds to our savings every month. Most of us do not bother much for a few hundred pounds savings but won’t you if those few hundreds can make your dear ones smile. All you need is plan strategically.
Reasons Why You Should Take Interest in Finances & Taxes
- Money that may seem very little to you in the beginning will actually bring lot of happiness in your life over your lifetime. Adding few hundred from here and there will only add up to make it thousands and lakhs as your savings grow.
- This will also increase not just your wealth but also your confidence level, now you know your finances well, which was scaring you like hell one time. The most complicated of all things you once thought is now most securing and rewarding. Now you know your financial responsibilities and understanding your income, outgoings, debt, assets and investments. You also know how savings will help you in your good and bad times and you spend more intelligently.
- And finally, one thing that is most important in a profession is, you will build good relationships with expert professional advisors.
Who Collects Taxes and Insurances from Professionals
Here in United Kingdom (UK), Tax and National Insurance are collected by H M Revenue & Customs (HMRC) from individuals and businesses. Thereafter, the role of the Government starts in redistributing the collected income to provide services across UK.
The tax year in UK runs from 6 April to the following 5 April for everyone. There are two types of uses of collecting taxes in UK – Pay as you Earn (PAYE) and Self-Assessment. Employees pay taxes under PAYE, while self-employed, higher paid employees and company directors pay under Self-Assessment.
There are Two Points to Note:
- It is possible to be an employee of one business and self-employed in another;
- It is possible to pay tax under the PAYE and self-assessment systems at the same time.
In either of the cases, you do need be cautious not to overpay tax.
What If You Are a Dental Professional?
As a Dental Professional both the above cases apply on you too. Besides, you can either be just an employee or could even be just self-employed. So in this case you either pay under PAYE system or pay under Self-Assessment.
If you are just an employee then not much need to be bothered about, as all your tax and national insurance that you owe to the Government will be collected by your employer. You employer will deducted from your income even before you receive it, which is further paid over to HMRC.
Thereafter, if the deductions are made correct then HMRC issues you correct PAYE tax code.
This applies when you are self-employed. Self-employed individuals, company directors and higher paid employees need to ‘self-assess’ the tax and national insurance that they owe to the Government on their income, and pay the same directly to HMRC.
Expenses, Deductions & Reliefs
In both the above taxation systems, you have the opportunity to claim relief for the expenses and deductions, you are entitled to. But, you have to approach HMRC to tell them what these are.
5 Tips to Follow as a Dental Professional or Medical Professional
1) Know What you Can Claim as Tax Relief on Expenses
You can claim relief for all the expenses you pay for the purpose of your business. However, if you are employed and your expenses are been reimbursed by your employer you work for or practice your work at, then you cannot claim tax relief.
All reliefs that you can includes in your claim consists of the courses and training costs that may include (travel and accommodation), your subscription for your business use (BADN, GDC, BDA and other business related associations), telephone and mobile expenses, travelling expenses, own car usage expenses, uniforms and their washing costs, using home as office, stationaries and postages, interests on a loan to buy dentistry equipment, materials and rentals for business and lab and accountancy and professional fees. It is advisable that you seek professional advice before claiming relief for these expenses.
You can also claim for your dental or computer equipment and low emission cars, purchased for business purposes in the form of capital allowances.
But as an employee, if you are being reimbursed by your employer for all the above expenses you make, you are not entitled for the above claims.
2) Manage your National Insurance Payments
People with more than one employment are at risk of overpaying in National Insurance. Those with both employment and self-employed status in the same financial year may find it complex, and end up overpaying. Every individual is required to a pay only the amount that they owe each year through National Insurance.
By applying to HMRC to defer class 1, class 2 and/or 4 national insurance, overpayment can be avoided.
3) Take Control of Debts and Liabilities
Bad debt management can lead us to huge financial difficulties. So it you need effective debt management that can help in saving money in an easy way.
You need to find out how much cost you are paying for your debts. First of all, list down all at one place - your banks, current accounts, loans, mortgages, credit cards, store cards and financial agreements, if any. Also take note of amounts of money you owe to banks and financial houses and the annual rate of interest that you pay for each one.
Thereafter, you rearrange the list as per the rate of annual interest that applies to each debt and place the one with highest repayment cost at the top. Next, you start moving your debts from costly ones to cheaper ones.
Also, don’t forget to pay off your monthly credit card bills in full. If by any chance you missed it then transfer the balance to a new credit with 0% interest rate on balance transfer and pay this off before the deal time runs out.
Always use only authorised overdraft facilities and also keep a check on the offset mortgages
4) Married? Know How it Can Benefit You
For married couples and civil partners there are few things to improve their financial situation.
They can consider business partnerships and ownership of joint assets.
If your spouse or partner pays higher or lower rate tax than you do and one of you is self-employed then you can save tax by working in a business partnership with your partner/spouse. If you find all this complicated, then take experts’ help to make yourself understand the rules as married couples to save tax.
5) Make After Retirement Plans
One you have started taking positive steps in the direction of improving your finances, it is time you plan something for your future also, to make it financially secure.
Start now so that when you retire you are secure. Invest in property, pensions stocks and shares.
People employed with NHS are probably member of the NHS Pension Scheme. This offers a pension linked to pay and length of membership, along with additional benefits comprising life insurance, pensions and allowances for your spouse and dependent children if you die, and voluntary early retirement.
For people who are not a member of the NHS or another employer pension scheme, then it advisable that they consult an independent financial advisor (IFA) who can guide you in selecting the right pension to invest in.
Government has also implemented some retirement plans for the citizens to help them save for retirement. This will require employers to automatically enrol their employees into a workplace pension.
Points to Take Note of Always
- Don’t get confused by the tips shared above. If at all at any point you get puzzled, do take advice of a financial and accounting expert, but don’t even stop thinking of not taking interest in finances and taxes. This will help you to not only grow financially, but personally and socially too.
- Do take interest in managing your money and make yourself aware of what you owe to Government as a Tax
- Do check online for online advices. Read some of the best websites on finance and taxation managements.
- You should be aware of what you are doing. Do check you employment status.
- Get registered with HMRC if you are self-employed. Keep record of all the bills and expenses for deduction and claim on expenses.
- Manage your debts and liabilities intelligently for effective financial management
- If you are planning for business partnership then seek professional advice to understand the compliances
- Make yourself aware of the tax-free – interest earned on ISA deposit accounts, premium bond winnings, income from the rent a room scheme
- Invent is pensions, property or both to secure your future plans after retirement
- If you still find it complex, then take help from a financial and taxation expert.