LIFE AFTER THE VTS- ACCOUNTING AND TAX MATTERS

Barbara Domanska

PKF(UK)LLP

23 June 2010

CONTENTS

• Employment – salaried GP

• Self employment- locum or Out Of Hours

• Partnership

• Basis of assessment

• Relief for expenses

• Superannuation

EMPLOYMENT – SALARIED GP ROUTE

• Salaried GPs are employees

• This is the same as

–Hospital doctors

–GP registrars

–Retained GPs

–Locums may be employed or self employed

–Flexible Career scheme GPs

• GMS practices have to offer as a minimum the standard Salaried GP contract

–Not obligatory for PMS practices

EMPLOYMENT – BASIS OF ASSESSMENT

• Employed GPs are taxed under Schedule E

–PAYE deducted from Wages

–May not need to submit a Self Assessment Tax return

• Earnings are taxed when they are paid to the employee

• Pay Class 1 NIC

EMPLOYMENT- EXPENSES

• Expenses in employment are allowable providing they are incurred wholly, necessarily and exclusively in the performance of the duties of your employment

• Exempt employer funded expenses

–Work related training

–Provision of a mobile telephone

–Mileage not exceeding the Fixed Profit Car Scheme (FPCS) rate for business journeys

• Cars 40p per mile for the first 10,000 miles• 25p per mile thereafter

–Subscriptions

• Child care vouchers available as a salary sacrifice scheme up to £243 per month

EMPLOYMENT- EXPENSES

• Tax relievable expenses paid by an employee

–Expenses that are necessary for doing your job

–FPCS mileage

–Subscriptions• GMC• BMA• MDU

– Annual membership fees not joining or exams fees

• Capital allowances available for the cost of equipment used in your employment

EMPLOYMENT- SUPERANNUATION

• Relief for employee and added years given via payroll before calculating PAYE due.

• New tiered contributions introduced from 2008/09 onwards

• Tier is based on actual pensionable pay from all practitioner earnings for the year.

• 2010/11 tiers

–Up to £21,175 5%

–£21,176 - £69,931 6.5%

–£69,932-110,273 7.5%

–£110,274+ 8.5%

• The practice pays the 14% employer contribution

SELF EMPLOYMENT

• GPs in the UK are independent contractors to the NHS and are self employed

• GPs are taxed under Schedule D

• Locums and OOH GPs may be self employed

• Fixed share partners and equity partners are self employed

• Salaried partners are taxed under PAYE (Schedule E)

REGISTER WITH HMRC!

• Must register with HMRC as self employed

–Required to file self assessment return

–Pay class 2 National Insurance Contributions (NIC)• Register within 3 months of commencing self

employment to avoid £100 fine

• Useful numbers for the Newly Self Employed

–Helpline for the Newly Self Employed 08459 15 45 15

–Self Assessment www.hmrc.gov.uk/sa

–Self Assessment Helpline 0845 9000 444

–National Insurance www.hmrc.gov.uk/nic

–Self Employment Contact Centre 08459 15 46 55

EMPLOYED OR SELF EMPLOYED?

• Are you really self-employed?

• The tax and NICs you'll pay depend on whether you're self-employed or an employee - so it's important to check that you really are self-employed. You're usually self-employed if you can answer 'yes' to the following:

• Do you have the final say in how the business is run?

• Are you responsible for meeting any losses as well as taking any profits?

• Can you hire someone on your own terms to do work for you?

• Do you risk your own money?

• Do you provide the main items of equipment you need to do your job?

EMPLOYED OR SELF EMPLOYED?

• Do you agree to do a job for a fixed price regardless of how long it may take?

• Can you decide what work to do, how and when to work and where to provide the services?

• Do you regularly work for a number of different people?

• Do you have to correct unsatisfactory work in your own time and at your own expense?

• You can be self-employed for some of your work, but an employee of another business as well.

LOCUMS

• ESM4062 - Particular occupations: doctors - locums

•Doctors also act as locums for other doctors. The word ’locum' comes from ’locum tenens' which means ’taking the place of'`. Such locum posts can be either in general practice or within the NHS.

Some doctors who describe themselves as locums may in fact be engaged to assist a doctor in general practice rather than to take the doctor’s place during illness or holidays. The earnings of such assistants are usually chargeable under Schedule E/as employment income and subject to Class 1 NICs.

It is essential to ascertain the contractual terms of any engagement and to review status in the normal way (see ESM0500 onwards)

SELF EMPLOYMENT- BASIS OF ASSESSMENT

• Self employed profits are calculated according to the accruals basis

• This means you have to account for income in the period it is earned rather than when it is received

–e.g. Locum work carried out in March 2010 but not paid until after 5 April 2010 would be included on the 2009/10 tax return

–The same often applies to out of hours work

SELF EMPLOYMENT- BASIS OF ASSESSMENT

• Expenses can be claimed when they are incurred rather than when they are paid

–e.g. petrol purchased on a credit card in March 2010 but not paid for until April 2010 can be claimed in the 2009/10 year

• Expenses also have to be matched to the period they relate to

–e.g. an annual subscription paid on 1 January 2010 relates in part to the 2009/10 tax year (1/1/10 to 5/4/10) and partly to the 2010/11 tax year (6/4/10 to 31/12/10)

–Strictly only the proportion relating to the 2009/10 tax year should be claimed on that year’s tax return

SELF EMPLOYMENT - EXPENSES

• Expenses that are wholly and exclusively incurred for the purpose of the business (note no longer have to be necessary)

• Claimed against self employment income for locums and out of hours work via tax return

• Claimed via the partnership return for partners as personal expenses claims

• Need to keep records of income and expenses

• Need to be able to justify business use percentages

–Keep mileage log etc

• Home to surgery travel as a locum may qualify as a business journey if home can be established as “base”

SELF EMPLOYMENT - EXPENSES

• Allowable expenses

–Subscriptions

–Motor expenses• Business use percentage• Or FPCS rate

–Use of home

–Home and mobile telephone

–Computer equipment and expenses

–Courses• Updating existing skills• Not acquiring new skills or obtaining qualifications

e.g. MRCGP

• Capital allowances available for cars, computer equipment and medical equipment

PERSONAL EXPENSE CLAIMS

• Prepared for each GP for a period of account

• GP receives tax relief for his own expenses, not shared with the other partners

• Maintain records e.g mileage logs

–Home to surgery travel generally regarded as private not business journey

• Must go on the partnership SAR of if single handed GP on personal SAR

• Similar expenses can be claimed as for GP locums

• See pro-forma

SUPERANNUATION –LOCUM A FORMS

• GP locums can pension GP NHS locum work via locum forms A and B

• Available from www.nhsbsa.nhs.uk/pensions

• Locum A form completed for each locum period worked each month

• Separate forms are needed for different practices

• Has to be signed by the locum and a representative from the practice

• Keep a copy for your records

SUPERANNUATION –LOCUM B FORMS

• Locum form B records locum work paid for in a particular month

• Record the details from the locum A forms where you have been paid for that work during that month

–E.g. a locum session performed in April 2010 would be included on a locum A form for April 2010

–If payment for the session was not made until May 2010 this would be included in the locum B form for May 2010

• Indicate the provisional tiered superannuation rate

–Arrears may be payable at year end

SUPERANNUATION –LOCUM B FORMS

• 90% of the locum income can be pensioned

• Host PCT are responsible for the 14% employer contribution

• Must pension within 10 weeks of doing the locum work

• Must send to Host PCT with payment and locum A forms no later than 7 days after the period the month the form relates to

• If locums are employed the practice would be responsible for the employers superannuation and employee contributions are deducted at source via the payroll

SUPERANNUATION - GP SOLO

• For pensioning fringe NHS work including OOH and PEC work

• NHS employing authority is generally responsible for paying the employer 14% contribution

–Occasionally the fee paid includes the funding for the employers superannuation which the GP then has to pay over with the employee contribution

• See example in pack

PARTNERSHIP

• Types of partners

–Equity partners• Take a share of profits

–Fixed share partners• Take a fixed share of profits

–Salaried Partners• Are employees paid under PAYE but with some say

in the running of the business

PROFIT ALLOCATION

• Refer to partnership agreement for arrangements

• Profits are generally shared in two ways

–Prior shares e.g• seniority• locum fees• net surgery income

–Profit sharing ratios• usually based on sessions worked• newly qualified GP may not reach parity for up to 3

years– often ties up with buying in

• e.g 80% for first 12 months• 90% for next 12 months• parity after two years

PARTNERSHIP ACCOUNTS

• Taxed on share of profits

• Take drawings from the business rather than being paid a salary

• Drawings can be a combination of things

–Fixed monthly drawings

–Equalisation/ QOF share out

–Variable monthly drawings

–Personal expenses paid by the practice on behalf of the partners

• E.g. subscriptions

• Income tax is not a partnership liability but may be paid through the practice accounts

PARTNERSHIP ACCOUNTS

• Assets and liabilities of the practice are funded by the partners’ capital and current accounts

–Property capital represents the equity in the property

–Practice may also require capital to finance the other fixed assets of the practice e.g. Fixtures, medical equipment

–Working capital is required to manage the cashflow of the practice

–A partner will be required to contribute capital when becoming a partner in a practice

SUPERANNUATION- PARTNERS

• All NHS profits are pensionable, including notional rent, dispensing profits etc

• Payments on account made from the practice budget during the year and adjusted when NHS superannuable profits have been calculated

• Tax relief given in the year in which the superannuation contributions are made

• Relief is claimed on the SAR for both the employee (tiered rate) ,employer (14%) and added years contributions

• Global sum includes employers superannuation in respect of the GPs

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ANNUAL CERTIFICATES OF SUPERANNUABLE PROFITS

• To be completed by each GP partner/non GP partner and single handed GP

• Certificate to be submitted to the PCT within one month of the deadline for the filing of the Self Assessment Tax return on which the certificate is based

• 28 February 2010 for the year ended 31 March 2009

• GPs joining the NHS pension scheme after 1 June 1989 will be subject to a cap on added years policies taken out before 1 April 2008

–£123,600 for 2009/10

• Usually requires input from the practice accountants!

• A GP provider must pension all their GP practitioner earnings

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TAXATION- SELF EMPLOYMENT

• Self employed GPs are taxed on the current year basis under Schedule D

–30 June 2009 assessed in 2009/10

–31 March 2010 assessed in 2009/10

–30 April 2010 assessed in 2010/11

• Have to submit Self Assessment Return (SAR)

• Partnership also has to submit SAR

• Generally filing date for Returns is 31 January following end of tax year

• Penalties for late filing of tax returns and failure to register on time as self employed

• Self employed GPs pay Class 2 National Insurance Contributions (NIC) as well as Class 4 NIC

BASIS OF ASSESSMENT

• New partners joining a practice are assessed in the first year on the actual profits earned

• E.g new partner joins a practice on 1 October 2009

• With 31 March year end

–2009/10 basis period - 1/10/09 to 31/3/10 (5/4/10)

–2010/11 basis period - year ended 31 March 2010

–2011/12 basis period - year ended 31 March 2012

• Most straight forward year end

BASIS OF ASSESSMENT

• With 30 June year end

–2009/10 basis period - 1/10/09 to 5/4/10

–2010/11 basis period – First 12 months 1/10/09 to 30/9/10

–2011/12 basis period - year ended 30 June 2011• periods from 1/10/09 to 5/4/10 and 1/7/10 to 30/9/10

are taxed twice• these are referred to as overlap profits• relief available on change of accounting date or

retirement from practice

TAX PAYMENTS

• GP joining a practice on 1 April 2009 with a year end of 31 March 2010

• If the GP has not been required to make payments on account, all of the tax payable based on the accounts for the year ended 31 March 2010 is payable on 31 January 2011

• Additionally the GP will be required to make payments on account for 2010/11

–50% of the 2009/10 total tax liability on 31 January 2011

–50% of the 2009/10 total tax liability on 31 July 2011

• When calculating the balancing payment for 2010/11, based on the accounts for the year ended 31 March 2011, the two payments on account are deducted to leave a balance payable on 31 January 2012

• And so on…………

• Can result in large balancing payments for a number of years

EXAMPLE TAX PAYMENTS

• 2009/10

–Based on the profits for the year ended 31 March 2010

–Tax liability £10,000

–Not required to make payments on account

–All tax payable 31 January 2011

• 2010/11 payments on account

–Required to make payment on account for 2010/11

–31 January 2011 £5,000

–31 July 2011 £5,000

EXAMPLE TAX PAYMENTS

• 2010/11 balancing payment

–Tax liability based on year ended 31 March 2011• £15,000• Less paid on account 2*£5,000• Balance payable 31/1/12 £5,000

• 2011/12 payments on account

–Required to make payments on account for 2011/12

–31 January 2012 £7,500

–31 July 2012 £7,500

• etc