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General Practitioners
This page relates to the special aspects of General Practitioners accounts and not
to full time NHS consultants who are assessed under the Schedule E employee
rules and a DSS / IR agreement HC(78)39 in respect of expenses.
On behalf of the firm, Michael Studham is a member of the Doctors Special Interest Group. Notes are attached arising from a group meeting in Nottingham in March 2002 including the proposed new GMS contract effective from April 2003. Red book information is available online.
Profit Sharing Agreement
Most General Practitioners operate as a group practice partnership, although
some doctors practice alone with locum and deputising support. In a GP Partnership
it is important that the Partners agree what is Partnership income and how it is
to be divided in a Profit Sharing Agreement.
The tax treatment of expenses as an allowable deduction may affect the decision on what is Partnership income. Doctors in a Partnership may hold hospital appointments. If these are not included in Partnership income, they will be assessed on the individual doctor subject to Schedule E expense deductions. If they are included in Partnership income, the Profit Sharing Agreement can reflect this.
It is not generally considered that General Practitioners will adopt the Limited Liability Partnership structure available from 6 April 2001, but there may be exceptions to this rule.
Accounts
Accounts for the Practice should always be drawn up to identify the business
achievement of the Practice and the division of profit / drawings / capital
balances of the Partners.
Year end
Prior to the introduction of the Self Assessment Tax rules in 1997, there
could be tax advantages in selecting a date other than 31 March / 5 April as
the Practice year end and 30 June was often used. Under the Self
Assessment Tax rules dates other than 31 March can cause a tax disadvantage,
particularly in partnerships, and most Practices will move to a 31 March year
end at a convenient time.
Statistics
The Inland Revenue provides statistics of Medical Practitioners income to the
Department of Health and the General Medical Services Committee of the BMA.
These affect future pay negotiations. This information is drawn from a sample of Returns from those doctors whose
accounting year ends between 1 January and 5 April. Gross expenses
should be reported without setting off any reimbursement in order that these
statistics are as accurate as possible.
Pro bono work
The Inland Revenue do not consider that expenses incurred in respect of any pro
bono work are allowable against taxable income and therefore any doctor
involved in such work should carefully consider the allocation of costs.
Course and Conference Expenses
Costs incurred to in keeping up to date with medical advances will qualify
as business expenses, but doctors need to be aware that the Inland Revenue will
challenge expenses of training for a new area of medical practice on the basis
that the primary purpose is self improvement. Overseas conferences,
particularly if accompanied by a spouse attract particular attention. It
is important to retain details of partners decisions about booking, course
content and timetables to substantiate the purpose of attendance and avoid
problems of duality of purpose.
Partnership Tax Return
The practice accounts form the basis of the Partnership Tax Return. The
Inland Revenue have published specific guidance for doctors in the completion of
Self Assessment Returns as help sheet IR 231. This indicates that expenses
against Practice Income must be included on the Partnership Return, even if
incurred by the individual doctors and not included in the Practice Accounts.
The profit allocation on the Partnership Return will reflect this.
Personal Expense Claims
Many doctors permit their Partnerships to benefit from the use of some of
their personal assets, their car and their home, and they may have personal
subscriptions to magazines and the BMA. Such expenses may attract
enquiries from the Inland Revenue and it is important to be able to substantiate
the business use.
A surgery as part of a doctors residence is less common than in the past but may still exist and might be evidenced by a plate outside the house and an entry in the telephone directory. Where there are costs incurred for the business use of the home these must be quantified on a reasonable basis and included in the Partnership Tax Return. This can include a proportion of mortgage interest in appropriate cases.
Assistance provided by a spouse must be evidenced and paid at an appropriate rate for the work done. PAYE income tax and NI regulations should be applied and pension contributions may be made by the employer which is the Partnership.
Following the introduction of Self Assessment and deputising services it is important to be able to demonstrate the basis of motor expenses claims and a mileage record should be kept by each doctor.
Private fees
Doctors should have procedures to record non NHS income. This will
include private consultations, fees for insurance medicals, lecturing, fees paid
by market research organisations acting on behalf of pharmaceutical companies,
and charges for signing cremation certificates. These may not be large amounts, they may
be received in cash, but the Inland Revenue are aware of them and can have
independent evidence of their payment. Omission from reported income can start an
enquiry and be a major source of embarrassment.
Capital Assets
Under the terms of their NHS agreements doctors are not allowed to sell
Practice Goodwill, and any transfer of an interest in the surgery premises must
not include a Goodwill element.
There are a number of aspects to be considered in the ownership of the surgery premises. This may be owned outside the Partnership as an investment but this may jeopardise Capital Gains Tax Business Asset Taper Relief.
Extra Statutory Concession A9
Doctors and dentists are required to be members of the NHS superannuation
scheme. This is a most unusual arrangement for self employed people. There
is an opportunity to purchase added years but other alternatives should also be
considered. Where doctors also wish to make pension contributions to
retirement annuity, personal pension or stakeholder schemes the rules are set
out in ESC A9 and need careful consideration.
Abbreviations
Doctors accounts and tax affairs have an added complication - the number of
abbreviations with which both doctors and their accountants have to cope.
We need a list to remind ourselves of
some of them!
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 18 June 2002.