Ross Brooke Dental founder Linda Giles explains Basis Period Reform
If you are a self-employed dentist or a member of a Limited Liability Partnership (LLP) who has traditionally had an accounting year end that was not co-terminus with the tax year you may face higher than expected tax bills in the short-term. This is the result of Basis Period Reform introduced by HMRC to standardise how and when non-incorporated businesses pay tax.
Moving forward, from 2023/24, the self-assessment system requires that an individual’s business profits will be taxed according to profits earned in the actual tax year. Previously, the self-employed were taxed on profits earned in their chosen accounting period. The result is an acceleration of tax liabilities which will impact the cashflow of those affected by the system change.
Linda Giles, Chartered Accountant and founder of Ross Brooke Dental, a NASDAL member firm, says that affected dentists will be well advised to speak to a specialist dental accountant to help them navigate the transition and plan to make correct tax payments this year and ensuing years. There are some high-earning dentists, she warns, who will have considerably more tax to pay.
She explains that by bringing forward the date when profits are taxed, the self-employed and LLPs with year ends other than 31 March and 5 April will be required to pay more tax to bring them up to date. She said: “They are not paying additional tax, just paying what is owed sooner. The key challenge for those affected will be cashflow management.”
She added: “There are ways in which accountants can help, for instance, through planned liability spreading, meaning the net transitional profit figure can be spread over a maximum of five years starting with the 2023/24 tax year which impacts the tax payment in January 2025.”
She said that around 20% of Ross Brooke Dental’s clients were affected by Basis Period Reform and had taken their advice on how to mitigate and plan for the impact of the unexpectedly higher tax bills.
“There has been an absence of publicity around this change which will disproportionately affect higher-earning self-employed business people. Unfortunately, I think there is a lack of awareness among some dentists whose accountants have not prepared them for the higher tax bill that they will be expected to pay in January 2025 and beyond.”