When to take professional advice – business owners

When is the best time to take professional advice?

Most medical practices will focus on the annual accounting and tax cycle and in many case’s the practice manager will have this area covered. However, there are number areas where the professional adviser, be it an accountant or lawyer, should be consulted or indeed be made aware of any proposed transaction. The major benefit of consulting an expert is that it ensures there are no unintended consequences of the transaction and financial/legal aspects are in the line with the expectations for those involved.

It is often difficult for the professionals to unravel the unintended consequences of a transaction after the event and therefore we would always recommend that a practice seeks guidance from the outset. From experience this avoids any nasty surprises in the long run.

With this in mind, we set out below the main areas when a medical practice should seek professional guidance:

1. Transactions out of the ordinary

Typically, this would cover the following:

Partnership agreements – this document governs the practice and the provisions included in the agreement range from financial arrangements, disciplinary action or expulsion for a fellow partner(s) and succession requirements. The partnership agreement should be reviewed periodically but more importantly it should be reviewed when a partner joins or retires from the practice.

Property transactions between partners – in theory this should be a straight forward transaction because, in most cases, you will have a willing buyer and a willing seller. The acquiring partner will, more often than not, be occupied with financing the purchase whereas the selling partner needs to focus on the tax consequence of the transaction. For example, does the disposal qualify for Entrepreneur Relief under the associated disposal rules.

Capital expenditure – in the last 10 years the Annual Investment Allowance for capital allowance purposes has ranged from £25,000 (in 2012) to its current level of £1m. This means the qualifying expenditure for medical practice is likely to be covered by the allowance available. However, we are often reminded that the current level is temporary which means if the Annual Investment Allowance is reduced the timing of a potential property refit may need to be reconsidered.

2. Legislative changes

The tax legislation is often changing and it pays to keep up to date with the revised rules and any the new initiatives brought in by successive governments. Your professional adviser should be able to provide guidance that effects medical practitioners.

For example, in the 2018 budget the chancellor announced a new Structures and Buildings Allowance for businesses incurring qualifying expenditure on new structures and buildings on after 29 October 2018. The tax relief amounts to 2% (on a straight basis) of the qualifying expenditure. The relief is not substantial in its current form but this may increase over the course of time.

A further example of recent major legislative changes was the introduction of the tapered annual allowance for pension purposes. This was introduced from 6 April 2016 and from our experience still catches a number of medical practitioners out.

3. Areas that are “Too good to be true”

In 2006 HMRC brought in new rules which meant a promoter of a tax avoidance scheme needed to apply for a DOTAS number (Disclosure of Tax Avoidance Schemes). This slowly reduced the level of aggressive tax avoidance schemes available to business owners and individuals but, has not, stopped some advisers pushing the boundaries of the tax legislation.

With the promise to reduce the overall tax burden it is understandable why business owners and individuals would entertain pushing the boundaries of the legislation however we would say that if something sounds ‘Too Good to Be True’ then it probably is.

By way of an example we have recently been asked to review a set of company accounts where the individual was uncomfortable with what was being claimed by way of capital allowances. It transpires the capital allowance ‘claim’ was based upon a percentage of the individual private residence which was barely used for business purposes.

The individual had good reason to be concerned because be no consideration had been given to the interaction with other taxes.

Suffice to say the individual did not go ahead with the planning’ and can sleep comfortably in the knowledge that they are now in safe hands.