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TAX TIP TUESDAY: How to Maximise Deductions for your Business

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

Part of running a successful practice is being able to turn a profit. Knowing how to maximise your tax deductions and business expenses will help with your bottom line, but many people aren’t exactly sure what qualifies for deduction.

There are few things you’ll need to master in order to ensure you’re taking full advantage of all possible deductions. Firstly, you’ll need to understand the rules around what can be deducted, understand what (and why) other expenses are not allowed, and learn when relief is given. Apart from that, maintaining clear and accurate records for your business will go a long way to helping the process.

“Wholly and exclusively”

What you need to remember when deciding whether or not a business expense is deductible is the “wholly and exclusively” rule. If the expense was incurred solely for the purpose of your business then it is allowable. Unlike employment expenses, there is no stipulation that the expense is deemed necessary – it is all down to the cost being exclusive for business.

With this in mind, it’s clear that any private expenditures not made exclusively for the purposes of the trade will not qualify and no attempts should be made to put them through the business — it will only result in trouble. What needs to be present is an “objective yardstick” by which to measure whether or not something can be identified as being for business.

One area where this comes into play is trading profits. If you can separate the trade and non-trade elements, you may be able to deduct the business portion. This can get complicated when an expense may serve both business and personal matters, but when possible, you can reasonably apportion the business expense in order to claim a deduction.

Easy to get in over your head

It’s easy to muddle your expenses if you don’t keep unique accounts for business and personal transactions. For limited company owners, where it is standard practice to do so, this isn’t an issue, but for smaller business owners who tend to rely on one account for both purposes, it can get messy.

In truth, handling business finances, in general, can be a complex affair, so if you find yourself in need of assistance, don’t hesitate to reach out for professional advice. While an accountant might be best appointed to handle certain situations, a financial advisor can provide guidance on your overall business plan and help you maximise your tax savings as well.

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