Doctors are facing many changes around the tax system and rates – and these may have a significant impact on your private practice business. Some of these measures have already been introduced and others are planned for the near future.

BASIS PERIOD REFORM

Basis period reform applies to sole traders and partnerships where their financial accounts are drawn up to a date that is not cotermi­nous with the fiscal year-end, which is 5 April – or 31 March for many in practice.

These year-end dates have often arisen from the commencement of the business or, for older busi­nesses, when the self-assessment tax system was introduced.

Legislation has now been intro­duced so that you have to report your profits to 31 March/5 April 2024, which may be a change to your usual year-end.

You do not officially have to change the date of your accounts, but it is expected that most busi­nesses will, unless you are expect­ing significant differences between accounting years, in which case some planning may be required.

The impact of the change is that it can accelerate income tax due on the profits, as it unwinds the timing difference for the disclo­sure of earnings.

This creates overlap profit, or in other words, you have used the same profits twice on the first period of 1 July 2010 to 5 April 2011.

This can be a benefit if profits are rising, as it builds in a timing dif­ference that you are effectively paying the tax on profits later.

Over the life of your practice, this would naturally unwind with usually a higher tax liability in the final year, often well after the busi­ness has, in fact, ceased.

The basis period reforms basi­cally unwind the timing differ­ence to align the disclosure for tax to the tax year-end. In doing so, the first period that was included twice is deducted from the longer period. More...