While it can be rewarding acting for GPs, their tax and accountancy affairs are often more complex than other clients and extra care should be taken to ensure they avoid the many traps which exist. The following are areas where things can easily go astray.
Where clients have both employment and self-employed income, care should be taken to ensure NIC is not overpaid. This can be dealt with either by requesting a refund of any overpayment following the submission of the tax return, or by applying for an NIC deferment certificate.
Where employment income is taxed through the partnership, the relevant adjustment should be made on the tax return so that class 4 NIC is not due on this element. Similarly the amount liable to class 4 NIC should be reduced for any relevant loan interest paid personally.
Where GPs take 24 hour retirement and return to the practice, the level of drawings should be reassessed. There should be the opportunity to increase drawings for a GP that has taken 24 hour retirement to compensate for the cessation of superannuation contributions. Where the practice pays the tax however, the new level of drawings should take into account the increased tax liability that is likely to arise following 24 hour retirement.
Where employment income is paid into the practice and shared in profit sharing ratios (profit sharing ratios => profit-sharing ratios; on-line PAYE => online PAYE) it is simplest if an NT code is applied. HMRC should agree to issue NT codes in such circumstances, however often new codes are issued each year, meaning NT codes need to be reapplied for. As accountants are no longer provided with PAYE codes when they are issued, it is important to monitor clients’ on-line PAYE coding notices on a regular basis.
Where GPs take 24 hour retirement, they may prefer to be taxed 40% at source on this income, to restrict the increase in the self-assessment tax liability. It may therefore be appropriate to request that a D0 code be applied for.
Where partners leave a practice, it can take up to two years for the final superannuation balance to be charged/refunded to the practice. Any final superannuation liabilities need to be taken into account when considering the balance payable to partners on leaving the practice, to avoid the position where partners are overpaid.
Where the practice has a non-March year end, the final balance can often be significantly different than usual because of the effect of overlap, and this should be incorporated in any calculations.
Where partners are fully retiring and will no longer have any earnings, it may be prudent to make an advance payment for the estimated superannuation balance due within the same tax year as retirement, to ensure that tax relief is available on this.
GPs often get confused about which expenses and income need to be shown on their personal expense claims and which are paid through the practice. Particular care is needed to ensure items are not duplicated, by considering the personal expense claims and practice accounts in conjunction. Particular risk areas are subscriptions and locum payments to partners.
Where partners change their sessions, there can often be a time delay in the superannuation payments on account and tax liabilities aligning with this, since these may be based on the profit shares from the previous year. This should therefore be taken into account when setting the level of drawings.
Jane Jordan, Director, Lentells Ltd
Healthcare Group, June 2014