Welcome to a
presentation by
Practice Finance
Mandy Riley
Birbeck Medical Group
Ann-Marie Tulloch
Dodd & Co Accountants
Agenda
Session 1
• GP Partner
• Practice accounts
Session 2
• Salaried GP
• Locum
• Tax for the self-employed
• NHS Pension Scheme
What Is A Partner?
• Self employed NHS contractor
o GMS contract - partnership holds the contract
o PMS contract - individuals hold the contract
• Partner in the business and allocated a share of
profits
• Self-employed individual for tax and national
insurance
• Access to NHS Pension Scheme
Important Documents
• Partnership agreement
o Legal agreement between partners, split of
profits, sickness, maternity, paternity rights
o Seek specialist legal advice
• Accounts
o Potential earnings / drawings
o Tax and superannuation liabilities
o Buy in
o Get specialist accountancy advice
Accounts
• Four components to a set of accounts: 1.
2.
3.
4.
Profit and loss account
Balance sheet
Partners capital accounts
Partners current accounts
• See example accounts
P&L Account - Summary
Pages 4 and 5
• What does it tell you?
• GMS or PMS practice
• Dispensing or non-dispensing
• Practice net profit - £393,170, £60.48 per patient
• How many partners there are – 2.5 FTE
• How profits are split between partners
• Potential earnings – c£150k per FTE partner
• Benchmark against other practices
P&L Account - Detailed
Pages 8-13
• What does it tell you?
• Main income streams
• Main costs
• Detailed comparison with previous year
• Movements should mirror changes to GMS/PMS
contract
• Ability to benchmark individual lines to improve
practice performance
Standard GMC Contract
• Global sum payments are a contribution towards the
contractor’s costs in delivering essential & additional
services including staff.
• Essential services in core hours 8am – 6.30pm
“registered patients and temporary who are, or
believe themselves to be ill ……….”
• Additional Services:
“registered patients and temporary provided with cervical
screening, contraceptive services, vaccinations and
immunisations, childhood vaccinations, child health
surveillance, maternity medical services & minor surgery”
Contract - Now
• Main income streams
– How are they paid?
– what changes have occurred to the core
contract in 2014/15?
• GMS - £73.56pp (2014 £66.25)
• MPIG – removal over 7 years
• PMS – contracts under review
• Enhanced services – most renewed for 1 year
• QOF – reduction in points 900 to 559
• Seniority – withdrawal by 2020
Contract - future
• Contract changes for 2015/16
• Unplanned admissions, extended hours and learning
disability EHS extended for a further year
• Patient participation and alcohol EHS will end
• QOF – no changes to points, indicators or thresholds
• Reimbursement for maternity/paternity locum costs
• Improvements to patient online access
• Working to address recruitment and retention of GPs
• Develop GP premises
• Publishing GP earnings on website
Balance Sheet
Page 7
• What does it tell you?
• Assets of the practice – do they own a property?
• Liabilities of the practice – who do they owe money
to?
• How the practice is financed – does this fit
comfortably with you?
• How much you will need to pay in
ASSETS – LIABILITIES = NET WORTH OF
PARTNERSHIP
Split between the partners
Property Ownership
Page 14 – capital account
BUY IN = % based on VALUE OF PROPERTY less LOAN
Buying 50% share £32,500 =(£100,000 - £35,000)x50%
Buying 1/3 share £21,666 =(£100,000 -£35,000) x1/3
•
•
•
•
•
Investment in the bricks and mortar
Get the property valued
Who pays for the valuation?
How will you finance the buy in – savings? Loan?
Timing of buy in
Current Account
Page 15
•
•
•
•
•
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Working capital – day to day funds
Practice needs cash to pay bills before it gets paid for
work done
All partners must therefore contribute to working capital
/ leave money in their current accounts
Available to draw when practice cash flow allows
Closing balance is undrawn profits
Can increase or decrease depending upon proportion of
profit drawn in the year, also with tax and SA paid/due.
Already taxed earnings
Will be paid out if leave
Loans To Buy In
•
•
•
•
•
•
•
•
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Property and /or working capital loans
Banks still keen to lend to GPs
Historically viewed GPs as relatively low risk
Preferential interest rates
Secured or unsecured lending
Use healthcare specialists at the banks
Increase in form filling - affordability
Can take time to arrange
Tax relief on interest
Key Questions To Ask
•
•
•
•
Copy of the most recent accounts
Copy of the partnership agreement
Practice list size - benchmarking
Which partner are you replacing?
– How many sessions did they work?
- Did they have any specialisms?
• How much could I earn?
– How are profits split between partners?
• Who pays the tax?
– When will the first bill be?
– How much will it be?
Key Questions To Ask (2)
•
Which expenses does the practice meet?
- National insurance
- Subscriptions
- Insurances, prof indemnity
• Drawings
– How much?
– Paid monthly in advance or arrears?
• Practice buy in
– How much?
– How is it calculated – property valued?
– When will I be expected to buy in – 6 mths?
Why Become A Regular GP
•
•
•
•
Treat patients, not just illness
Rewarding/job satisfaction
Seeing the good with the bad
Supportive interactive environment/part of the
team
• Regular Hours & remuneration
• Intellectually stimulating
• Special interest/Practice involvement
Salaried GP
•
Tax, National Insurance and SA deducted at source by
employer
• Net pay is yours to spend
• Sickness/maternity/paternity rights set out in
employment contract
• Expense claims limited
• Subscriptions
• Mileage not reimbursed by employer
• Use P45 or complete P46 if changing jobs
Locum
•
•
•
•
•
•
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Responsible for invoicing practices
Greater flexibility – sessions/rates
Care re. long-term cover
No sickness/maternity/paternity rights
Notify HMRC of self employment
Complete Tax Return and calculate/pay own
tax
Practice pays ER superann
Take Home Pay Comparison
• GP Partner
o
Profit less tax, NI, EE superann and ER superann
• Salaried GP
o Gross pay less tax, NI and EE superann = Net pay
o Employer pays ER superann
• Locum
o Total fees, less tax, NI and EE superann
o Practice pays ER superann
• Think about subs and other costs
Tax Tax TAX!
Clue: SELF Assessment
Becoming Self Employed
•
•
•
•
•
Requirement to notify H M Revenue &
Customs
Deadline 5 October after end of tax year start
self employment
Register online or ask us
Failure to notify penalty
Form CWF1
National Insurance
• Class 2 NIC
– £2.75 per week (i.e. £143.00 per annum)
– Most commonly paid by monthly or 6 monthly DD at
the moment
– Under self assessment from April 2016 – Jan/July
• Class 4 NIC
– Profit related
• Profits £ - £ 9%
• Profits > £ 2%
– Apply for deferment if you pay class 1
too
Tax
Paid January and July
2014/15
Personal allowance (0%)
Basic Rate Band (20%)
HR Band (40%)
Additional Rate (45%)
10,000 *
10,001 – 41,865
41,866 – 149,999
>150,000
* Reduced if earn over £100,000
What Am I Taxed On?
•
ALL taxable income
• Self employment income
• Salary, rental profits, bank interest,
dividends etc
• Relief for Superann/personal pension
contributions, professional loan interest, gift aid
etc.
Motor Expenses
•
Fixed Mileage Rate on business miles
• First 10,000 at 45p per mile
• Rest at 25p per mile
• Actual Costs plus Capital Allowances
• Fuel, Repairs, RFL, Insurance etc
• Claim % based on business use
• Mileage log recommended – business
miles vs private miles
• Be consistent
Other Expenses
•
•
Use of Home
Telephone/Computer costs
Subscriptions
Courses
Other equipment
•
Business use only
•
•
•
Tax Example
• Year end 31 March 2014 – profits £60,000
• Year end 31 March 2015 – profits £70,000
• 2013/14 payment profile is as follows:
Balance due 31/01/15
£17,226
Tax Gets Complicated
Tax Example
2014/15 payment profile is as follows:
31/01/15 1st POA 14/15 £8,613
31/07/15 2nd POA 14/15 £8,613
Tax due 31 January 2015
Bal 13/14£17,226
1st POA 14/15
£8,613
Total Due£25,839
Tax Example
2014/15 payment profile is as follows:
31/01/15 1st POA 14/15
£8,613
31/07/15 2nd POA 14/15
£8,613
31/01/16 Bal 14/15
1st POA 15/16
Total Due
£4,016
£10,621
£14,637
Tax Bombshell
• Likely to be higher rate tax payers
• 40% on earnings over £41,865
• If profits rise – January tax bill goes up by
60% of the increase
Tax Example – Falling Profits
Year end 31 March 2014 – profits £60,000
• Year end 31 March 2015 – profits £50,000
•
•
2013/14 payment profile is as follows:
Balance due 31/01/15
£17,226
Tax Example – Falling Profits
•
•
2014/15 payment profile is as follows:
31/01/15 1st POA
£8,613
31/07/15 2nd POA
£8,613
30/09/15 Repayment 14/15
£4,384
31/01/16 1st POA 15/16
£6,421
Could reduce July POA to £4,229
• Could reduce January & July POA to £6,421
Tax Summary
First year of self employment – no POA
• No POA = High tax bill in January – ask us for an
estimate
• Future years
̶ Profits ↑ higher tax on 31 January
̶ Profits ↓ no balancing payment
refund due or reduction
in one/both POA
•
Locum Companies
•
Tax/SA savings vs NHS pension
“A GP locum who sets themselves up as a
limited company cannot be pensionable in
the NHS pension scheme”
•
Negotiate a higher rate?
Locum Companies
•
Separate legal entity
• Income earned by limited company
• Company invoices for work
• Fees paid into its bank account
• Not salaried posts
• Company pays corporation tax (20%)
Earnings From Companies
• Salary
– Basic salary
• Dividends
– Taxed on recipient
– Must go into their bank account
• Tax savings if dividends are paid to a BR tax
payer, spouse or child over 18 yrs
Mileage And Expenses
• Cars generally run privately due to BIK rules
• Reclaim business mileage at fixed rates 45p/25p
• Other expenses
o
o
o
o
o
Subs
Medical indemnity – personal or Co. name
Locum insurance – Co. name
Telephone – contract in Co. name
Broadband – business proportion
Statutory Accounts
• Filed within 10 months of year end
• Corporation tax due 9mths and 1 day after year end
• Corporation tax return due 12 months after
accounting year end
• File annual return
• File forms for changes to directors and shareholders
etc
• Additional costs associated with statutory
requirements.
• Not a short-term decision
Pensions
Pensions
“We understand, that you are NOT
an Independent Financial Advisor
and therefore cannot advise us in
any way about our pensions.”
The NHS Pension Scheme Is
Changing
The 1995 Scheme (“Old”)
• The 2008 Scheme (“New”)
• Joining after 1 April 2008
• Chose to move from Old scheme
• The 2015 Scheme (“New New?!?”)
• Joining after 1 April 2015
• All members unless transitional protection
•
Comparison Of Schemes
1995
2008
2015
NPA
60
65
State
Pension Age
MRA
50
55
57?
Membership Limit
16 - 70
16 – 75
16 – 75
Max Membership
45 years
45 years
No limit
Pension
1.4%
1.87%
1.85%
Lump Sum
4.2%
Nil
Nil
2015 Scheme – Key Facts
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•
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Existing benefits frozen
At retirement existing benefits calc inline with
rules of 2008 scheme – watch breaks of > 5yrs
CARE scheme
Linked to state retirement age – gov.uk website
Accrual rate of 1/54 i.e. 1.85%, with no TFCS
Yearly revaluation of CPI + 1.5% for active
members
Early retirement reduction buy-out option to
eliminate or lower cost of early retirement
2015 Scheme – Key Facts (2)
•
•
•
ERR buy-out – max 3 yrs before NPA and not
before age 65
ERR buy-out cost depend upon age and
number of years being purchased e.g. 3 yrs at
age 20 = 3.6%, at age 60 = 4.7%
Benefits can be taken at the same time as 2008
section (with reduction) or at NPA or any date
between
CARE Pension Calculation
X
Annual
pensionable
pay
1/54th
=
Year 1
• Pensionable pay £50,000 x 1/54th = £926
CARE Pension Calculation
• Year 1 pension is revalued by CPI + 1.5% = £958
• (CPI + 1.5% = say 3.5%)
Year 1 After
Revaluation
CARE Pension Calculation
• Year 1 pot continues to be revalued until
retirement 10 yrs = £1,306
Year
5
Year
6
Year
4
Year 1 After
20 Years
Revaluation
Year
3
Year
2
Year
1
• A new pot for each year of membership
CARE Pension Calculation
• The total of all your pots after revaluation gives
your final pension
Total
Pension
Contribution Rates
Up to £15,431.99
£15,432 - £21,387.99
£21,388 - £26,823.99
£26,824 - £49,472.99
£49,473 - £70,630.99
£70,631 - £111,376.99
£111,377 plus
5%
5.6 %
7.1 %
9.3 %
12.5 %
13.5 %
14.5 %
Employers 14.3% (13.5% in Scotland)
2015/16 – 2018/19 Rates
Additional Pension
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•
•
•
•
•
Up to £5,000 additional pension per
annum in £250 tranches
Lump sum or monthly payments
Calculator on website
With or without dependent cover
Consult IFA and Tax adviser before
committing
CARE re annual allowance
Pensions
Pensions – Salaried GPs
Estimate of pensionable earnings – set tier rate
• Type 2 certificate
• Submit by 28 February
• Exclude trainee earnings in first year
• Under/overpayments collected in next tax year
from relevant source
• Ensure exclude from next years form
•
Pensions - Locums
•
Practitioner scheme
• Locum A & B forms
• “Short term deputising work”
Fee based GP work over a longer period
Practitioner Type 2 scheme
• Appraisal income (from April 2014)
Employer Contributions
•
Now paid E’er contributions in addition to fee
E.g.
£1,000
Receive £1,000 fee + £126 to pay over to PCT
•
Must pay over contributions – FRAUD!!
£900
£126
Pensions Locums
•
•
•
•
•
Submit within 10 weeks
Locum A form signed by practice
Pay contributions 7 days after month end
Not OOH work
Keep copies of forms
• For tax return
• For SA certificate
• For evidence for pension record
Pensions - Partners
Estimate of Pensionable Profits – sets tier rate
• Deadline 1 March
• POA deducted monthly
• Annual certificate of profit
• Deadline 28 February
• Balancing payment/refund due March
• Delay if late submitting certificate –
impact on tax relief
•
Annual Allowance
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•
•
•
•
•
•
Maximum contributions to a pension scheme in a tax
year
Limit from 1 April 2014 reduced to £40,000
Taxed on excess over £40,000 (highest rate)
3 year c/fwd
Defined benefit scheme – growth in pension
Remember personal pensions
Change in circumstances
- becoming partner in high earning practice immediately after
qualifying
- Pension flexibilities
Pension – Where To Get Help
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•
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Scheme Guide on website
www.nhsbsa.nhs.uk/pensions
FAQ’s
Member forms
Fact sheets
Calculators
Newsletters
Thanks For Listening
Any questions?