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GP Practice cashflow and sustainability

Author: Steve Cosford MHA

Published: 14 Jun 2023

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How GP Practice accountants need to be advising their clients, now that costs are increasing and profits are reduced.

For 2020/21 and 2021/22 most GP Practices and partners saw sizeable increases in their practice profits for a number of reasons. Typically, the main reasons for this was to do with additional COVID-19 support and COVID-19 vaccine income, although the financial results do not of course reflect the working conditions and pressure that GP Practices went through in that period. There are however concerns now that GP Partner profits will start to decline as COVID-19 monies reduce or stop, added to the additional costs that all businesses are facing with energy costs and salary increase pressures. The general uplift in 2023/24 NHS income is only 2.1% with the expectation that this will be passed on in the level of staff pay rises. Many practices have had to consider whether to offer more in order to retain staff, and there is of course a much higher pay rise for lower paid staff due to the increase in the main minimum living wage rate from £9.50 to £10.42, a 9.7% increase. I have recently reviewed some December 22 and March 23 accounts and their 2022/23 profits are already showing reductions from 2021/22 before the anticipated reductions in the current year.

As GP Practice accountants, we therefore need to consider what warning messages we should be giving our clients and what areas we can suggest that they review in order to minimise any impact on profitability or cashflow.

First of all, what tax considerations and other provisions should we be informing our clients about that could have an impact on their practice and personal cashflow so that they can plan in advance for them?

  1. Tax changes 2023/24 – our clients may already be aware of the tax changes that are now in place with the freezing of personal allowances and the basic rate tax band, plus the reduction of the additional rate tax band from £150k to just over £125k. Many may be aware of these but will not have appreciated the timing of when this will impact on their six-monthly tax payments, which won’t be until January 2025.
  2. Tax time lag – especially non-March yearends. Many practices will still be paying higher levels of tax based on previous profits at a time when current profits are reducing. That said, for the December 22 and March 23 yearend accounts mentioned above, there is the scope to reduce the July 2023 tax payments on account.
  3. Change of basis period for non-March yearends – the first tax payment that this will impact is the January 2025 one but we need to be warning our clients about this now
  4. Large 2021/22 and/or earlier years balancing superannuation payments not taken yet – remind clients of amounts not paid yet. They won’t get any advance warning for when PCSE will deduct these from the monthly NHS statement and so need to have money set aside for them.
  5. Following on from the above point, where superannuation refunds are due and have been provided for in the yearend accounts, and so credited to the partners’ current accounts, then the practice should hold these monies back from any departing partners until the refunds have actually been received
  6. Clawback provisions in accounts not taken yet – rates reimbursements (re rates refunds), seniority (former partners and reduced sessions leading up to March 2020) etc. Practices may not be aware that part of their bank balances include monies that are not theirs and should be set aside to cover these liabilities when they become payable.
  7. Service charge arrears for NHS property buildings – I have some clients that have six figure provisions in their accounts for estimated arrears covering a number of years, without knowing how realistic those provisions are due to a lack of detail and agreement with NHS PropCo. This has an impact, with partners leaving and joining over what happens when the final amount is agreed if the accumulated provisions don’t cover it, and also if the practice hasn’t set aside enough cash for it.

What sort of on-going things should we be reminding our clients about as best practice in order to maintain cashflow?

  1. Tightening up on PPA drugs reimbursement claims
  2. Prompt submitting of claims and invoices for regular reimbursable items, such as rates, water rates and CQC. I have some clients where we have debtors for more than one year of arrears even though we remind them every year.
  3. Being aware of and submitting prompt claims for locum reimbursement for sickness and maternity leave
  4. Following on from the above point, considering the level of additional locum insurance cover that the practice may need. I have noticed increasing levels of NHS locum reimbursement income in my clients’ accounts suggesting a higher level of longer-term absences. With the NHS funded reimbursement capped at £1,751.52 a week, and the increasing cost of locum rates, the practices may want to consider if the cost of additional locum insurance cover is worth the risk of having to fund a greater NHS reimbursement shortfall.
  5. Consider whether to challenge rent reviews, possibly engaging a professional valuer
  6. Challenging and negotiating service charges, especially in shared premises – are they being charged for items that they are paying for direct? I know of some practices where telephone costs and energy costs have been included in the service charge where they pay their own costs separately.
  7. Re-negotiating contracts or shopping around at renewal time. For example, a number of my clients have recently re-negotiated their phone deals and, with recent reductions in energy prices, hopefully there will start to be price comparison opportunities again.
  8. Prompt update of changes with PCSE – for example, partners leaving, reducing sessions, changing from salaried to partner, opting in or out of the NHS pension scheme etc. to ensure that the relevant changes to on-account superannuation deductions are made with the correct timing

Other considerations:

  • A small reduction in monthly drawings now could avoid a bigger reduction later
  • Remind clients that additional ‘bonus’ drawings pay-outs, typically in January and July to help with tax payments, are not guaranteed and are subject to current and projected cashflow allowing them. Individual partners should not rely on the same level of bonus payments as in recent years and may have to consider requesting time to pay arrangements with HMRC if they do not have enough funds to cover their tax liabilities at the relevant payment dates.
  • Review level of partner current account balances – often these are drawn down to an agreed amount each year as current account equalisation payments on completion of the yearend accounts. Higher balances may need to be left in the practice going forward, especially where there are reductions in overall partner numbers or sessions, or where the practice has greater cashflow movements, such as dispensing practices.
  • Timing of new partner pay-ins – there can sometimes be a delay in monies being paid in by a new partner after the pay-out to an outgoing partner, depending on what the partnership agreement states. Some practices allow a new partner to build up their balance over a period of time through reduced drawings or low/no share of bonus pay-outs but may have to consider accelerating this going forward, which could require a change to the partnership agreement terms.
  • PCN payments – some PCNs make payments to practices for regular income on more of an ad hoc basis, which should ideally be monthly or promptly after the monies have been received by the PCN. Also, some PCNs are sitting on large cash balances where a discussion and agreement should perhaps take place on what that money is for and the timing of when those monies should be passed across to the member practices subject to the PCN’s spending plans for them and its own cashflow requirements.
  • Lastly, regularly relying on an overdraft is not good financial practice and can be very costly. However, having a pre-approved overdraft facility that can be used in an emergency could be a vital safety net for some practices that might be worth considering.

Typically, GP practices keep quite basic financial records with very few planning further ahead with profit and cashflow forecasts etc. As a minimum, I would suggest that practices now need to be looking at cashflow forecasts 12 to 18 months ahead and updating these monthly for the latest information in order to predict when there might be cashflow difficulties, so that early action can be taken to avoid them. As referred to above, a small reduction in drawings now might be a lot easier to take than a bigger drop later or even having to pay money into the practice when cashflow is at crisis point. At a time when a profit squeeze is expected, practices will need to be more pro-active and forward thinking in managing their finances to get them through some difficult times.

*The views expressed are the author’s and not ICAEW’s.