Mr Paul Redmond writes that it is important for GPs to make preparations for filing their income tax return as early as possible
Some of the comments we hear from GPs as they begin another year of accounts are as follows:
Cash flow monitoring.
Management of the practice.
Working longer hours, plus the burden of compliance with Revenue and personal income tax.
We believe that this burden can be significantly reduced if you prepare and communicate earlier in the year with your accountant and tax adviser. The first quarter is the ideal time for preparation and planning to ensure that you are better prepared for your income tax bill. Outlined below are some simple steps to give you guidance.
1. Communicate with your adviser early
Call your accountant and ask if your accounts could be prepared early in the year, as you want to be more prepared and understand the cash-flow implications and how much money you require for the balance of your income tax for the current year and what is the likely preliminary tax you will be required to pay in mid-November.
Get a list of all the information from your accountant that he will need and designate somebody in your practice to gather this for you. If this is going to be you, then put aside 20 minutes a day to get it sorted.
Get some deadlines from your accountant about the timelines he will require to produce the accounts for you.
When you submit the information, ask can you go through it with somebody in the practice to make sure all information is there. In particular, go through the cheque stubs with your accountant so that they can be read properly.
Enquire if there is anything you can do to simplify the job.
Inform them that you would like a full explanation of the accounts at your meeting.
Tell them that you would also like to discuss the accounts at draft stage.
Do not be afraid to ask any question about the accounts.
2. Preparing your income tax return
Get a checklist of what information is required to prepare your return.
It is VERY important that you make an effort to understand the make-up of your income tax return.
Part one: This is made up of your income from all sources. If you are resident and domicile in Ireland, then you pay tax on all your income from all sources anywhere in the world. This also includes deposit interest, P60 income, as well as practice income. If you are married, then your spouse’s income may be taxed along with yours.
Part two: This is made up of all your allowances against your tax. It also includes pension payments, permanent health insurance payments, together with several more allowances.
I cannot tell you how many times I have seen doctors not claiming their proper allowances and not getting their credits for all sorts of allowances.
3. Meet your financial adviser
Your income tax return should not be completed until you get a written note of all policies from your financial adviser, detailing exactly what policies you have been paying, past and present.
Ask the financial adviser what policies are deductible for income tax.
Get a list of the premiums paid in the year for all policies.
Have an annual financial review in respect of your income tax return with your financial adviser and ask them to make suggestions as to how you can reduce your tax burden.
Ideally, have a meeting with both your financial adviser and your tax adviser. This could be worth a staggering amount of tax savings for you over several years.
Remember, we are talking about reducing your income tax burden here, and not about the return on pensions — that is completely a separate discussion.
The big benefit here is that you can make a pension payment up to the filing of your return and reduce the burden of your tax bill.
Make sure your financial adviser understands the Doctors GMS Scheme and can properly calculate your pension payments between GMS and private practice income. There is a difference here.
4. Paying a tax bill
Financial institutions are lending money to finance both tax and pension payments over the year. This should not be discounted, as it is a real option in a lot of cases.
If you are making significant changes in the practice during the current year, inform your accountant and see if it makes any change to your preliminary tax payment.
