With the financial year end fast approaching for many practices owners and self-employed associates, therapist and hygienists, so starts the annual rush to pull all the reports, invoices, bank statements, cheque books, pay-in books and NHS schedules ready for sending into the accountant to find out how much profit you have made and just as important, how much tax you will need to pay over the next year.
This traditional year-end calculation of tax by your accountant is soon coming to an end as HMRC moves quickly towards a system of quarterly tax reporting with almost “real time” tax calculations and payments.
Consultations over the new system came to a close in November 2016 and the changes are moving towards a start date of April 2018 with legislation and final details due to be published in the 2017 Finance Bill later this year.
Under the proposals, all businesses with turnover in excess of £10,000 must move to quarterly electronic profit reporting, although this threshold may increase in the final legislation.
April 2018 is the first key date when all sole-traders and partnerships will need to be ready for what is a major change.
Corporation tax does not move across until April 2020 and so any practices or self-employed clinicians who are set up as limited companies will have an extra 2 years to prepare.
Many businesses are familiar with, and set up for, electronic quarterly reporting through completion of VAT returns and the production of monthly or quarterly management information. For the VAT-exempt dental sector this will be a challenge, particularly as many practices don’t track financial performance through the year.
A further complication for NHS dental practices, will be the accurate reporting of profit. The monthly payment which drops into your bank account on the 1st of the month from the NHS rarely reflects the true earnings from NHS work over the last month, due to all the deductions you see on your schedule including superannuation payments, remissions, patient payments, levies, debt and repayment.
Where you are under or over-performing on your NHS contract, further adjustments are needed to reflect.
The good news is that the advent of Making Tax Digital should encourage more dental practices to start using electronic accounting software such as QuickBooks and Xero.NHS adjustments can easily be made on a monthly basis to reflect true delivery.
As most of my clients will know, I am a big fan of monitoring both financial and non-financial key performance indicators (KPIs), which give you a powerful insight into the business. You and your practice manager can easily see what is going well and where you can best focus your attention to grow the practice and nip any problems in the bud.
Accounting software quickly produces all the financial KPIs you need and when used alongside non-financial KPIs such as chair-occupancy, staff/patient satisfaction and waiting times, helps place you right in the driving seat with vital information at your fingertips in an easy to read format – often known as a Dashboard for all the right reasons.
Bank reconciliation is straightforward, with all transactions automatically downloaded from the bank, categorised and matched against invoices.
Once you have accounting software in place, you can easily create annual forecasts and instantly track actual performance against what you expect or hoped for. No more surprises and far more time to react, plan and make changes.
If the plans for Making Tax Digital help to give practices a better insight into their business whilst encouraging better planning and monitoring, you can start to see the opportunities appear.
As with PAYE, HMRC will be introducing basic on-line software for entry of quarterly information but with all the extra benefits arising from better management and financial control of your practice, now is a good time to take the plunge and try it for yourself ready for 2018 onwards.
I support and work with clients successfully using both QuickBooks and Xero and can help you set-up and run your new accounting software in conjunction with your accountant.
You can find out more about how QuickBooks On-Line works here, including the opportunity to test drive a demo, so that you can see for yourself just how easy it is to use.
If you are interested in finding out more, please get in touch through firstname.lastname@example.org or book a complimentary telephone call using our on-line calendar.