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.Profit and loss account 2.Balance sheet 3.Partners capital accounts 4.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 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 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 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. £ 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%)10,000 * Basic Rate Band (20%)10,001 – 41,865 HR Band (40%)41,866 – 149,999 Additional Rate (45%)>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, /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: 31/01/151 st POA 14/15£8,613 31/07/152 nd POA 14/15£8,613 Tax due 31 January 2015 Bal 13/14£17,226 1 st POA 14/15 £8,613 Total Due£25,839

Tax Example 2014/15 payment profile is as follows: 31/01/151 st POA 14/15 £8,613 31/07/152 nd POA 14/15£8,613 31/01/16Bal 14/15£4,016 1 st POA 15/16£10,621 Total Due £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, /14 payment profile is as follows: Balance due 31/01/15£17,226

Tax Example – Falling Profits 2014/15 payment profile is as follows: 31/01/151 st POA£8,613 31/07/152 nd POA£8,613 30/09/15Repayment 14/15£4,384 31/01/161 st 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 Subs o Medical indemnity – personal or Co. name o Locum insurance – Co. name o Telephone – contract in Co. name o 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

“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 NPA6065State Pension Age MRA505557? Membership Limit – 75 Max Membership45 years No limit Pension1.4%1.87%1.85% Lump Sum4.2%Nil

2015 Scheme – Key Facts 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 Pensionable pay £50,000 x 1/54 th = £926 X Annual pensionable pay Year 1 1/54th =

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 A new pot for each year of membership Year 1 After 20 Years Revaluation Year 6 Year 2 Year 4 Year 5 Year 1 Year 3

CARE Pension Calculation The total of all your pots after revaluation gives your final pension Total Pension

Contribution Rates Up to £15, £15,432 - £21, £21,388 - £26, £26,824 - £49, £49,473 - £70, £70,631 - £111, £111,377 plus 5 % 5.6 % 7.1 % 9.3 % 12.5 % 13.5 % 14.5 % 2015/16 – 2018/19 Rates Employers 14.3% (13.5% in Scotland)

Additional Pension 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 Receive £1,000 fee + £126 to pay over to PCT Must pay over contributions – FRAUD!! E.g. £1,000 £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 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 Scheme Guide on website FAQ’s Member forms Fact sheets Calculators Newsletters

Thanks For Listening Any questions?