A dangerous spell for dentists
Pity the poor Inland Revenue (IR). The recession has hurt the finances of millions of people and tens of thousands of organisations, but no one has seen their income shrink more than the IR; no one is so cash starved as the collectors of the tax levied on our shrinking incomes. Partnership and company profits are down or non-existent, so the personal and corporate tax receipts from individuals, partnerships and companies are down. Unemployment is rife and growing, so there are fewer and fewer individuals paying tax, which is making further catastrophic inroads into the IR tax take.
Should we worry? Well, yes, because somehow the IR will have to make up this loss or the whole country will grind to a financial halt.
How is the IR going to make up the loss? Simple, by extracting more tax from those who have income to tax. And how will it do that? By investigating non-compliance. In other words, by digging and delving into tax-payers’ accounts until some small discrepancy is found, and then digging and delving some more until it finds something worthwhile to get its teeth into. If that sounds painful, it is, and if it sounds technical, it is that too. Here are a couple of vital statistics.
The IR raised nearly £13 billion last year from tax payers whom it discovered had, innocently or otherwise, fell foul of the complicated rules. Some of the £13 billion was made up of the additional tax payments which had to be made by those who had not previously paid enough tax, but much is made up of interest payments and penalties. Unlike politicians, the tax-payer can’t say: ‘Sorry, I’ll pay it back’, and be forgiven. Evasion of tax, whether through genuine mistake or not, may warrant a slap on the wrist i.e. not only interest payments on the amount unpaid, but penalties too.
To make up for the reduced tax take due to the recession, the IR needs to increase this non-compliance tax from £13 billion a year to £20 billion a year. And how will it extract this money? One way is by a pound by pound investigation of the accounts of individuals, partnerships and companies who might, just might, be hiding a few pounds somewhere in their accounts.
Frank Pons of Professional Fee Protection, one of the leading companies of fee protection that insures taxpayers against the cost of these investigations, tells me that, in his experience, dentists are four times more likely to be investigated than the average business. So your turn may come soon.
The IR has an absolute right to look into your accounts and make a minute examination of them, if it finds even so much as £1 adrift, £1 of income which you have not declared for tax or £1 of expenditure overstated, it can go back many years in some cases with what is called a Full Enquiry. How will you cope with the time and effort it will cost to deal with this investigation? It seems to me that there are two options: the first is to do it yourself. But you won’t want to give up surgery time to do it, and you won’t want to give up family time to do it, or golf, or anything else for that matter. The second is to employ an accountant to do it. But he or she will charge you by the hour and you know how expensive that will turn out to be, unless you have insurance to cover the cost.
For a small annual amount you can cover the cost of an accountant to deal with an IR enquiry of your accounts, your PAYE returns and your VAT returns. I wouldn’t be without it.