22 Jan What’s new in… practice finance
The world of finance for GP practices is always evolving and it is becoming increasingly difficult to keep pace with the changes, the following issues are the ones that we recommend Practice Managers pay particular attention to in 2018:
IR35 and the use of locum GPs and other temporary staff members
The application of the requirements of IR35 have been fairly widely reported, but we are still seeing practices regularly get this wrong. One common misconception is that if an intermediary agency is involved, and therefore the invoice is not coming directly to the temporary worker, then IR35 does not apply.
In reality, the intermediary agency does not provide protection to the practice and the underlying terms of the contract still need to be considered. Remember, the liability can fall back on the practice if IR35 is not correctly applied, and if locums are used on a regular basis the amounts involved can quickly mount up.
Use of limited companies
We have recently seen a significant uptick in interest in the use of limited companies for the operation of GP businesses and/or for the holding of practice premises. The reasons cited for these enquiries have generally either been tax related or risk management related.
The broad principle that has historically been applied is that partnerships are the best fit for a GP practice because they bring a great deal of flexibility i.e. partners can join and leave without having to deal with share transfers and the amounts invested in the business can rise and fall based on sessions or some other metric very flexibly. Also the sharing of profits is often complex in a GP practice and again a partnership allows for any number of adjusting items.
Saying that, giving consideration as to whether your legal structure is still fit for purpose is a very healthy thing to do. There may be certain circumstances where the availability of limitation of liability may become attractive to partners and the ability to retain profits in the business at corporate tax rates may also be attractive in certain circumstances.
This subject is too large and complex to discuss in too much detail in this forum, but it is worthy of note because of the significant impact on the tax liabilities now being seen by GPs arising from the new system of tapering of annual allowances. An additional challenge is the lack of information available from the pensions agency in relation to key numbers required for tax calculations to be made.
Our recommendation in this respect is to ensure that you take advice from a specialist medical accountant to ensure that unused prior year reliefs are utilised. We also recommend that before any knee jerk decisions are made relating to scheme elections, membership or contributions GPs consult a qualified financial planner with a specialist understanding of the various iterations of the scheme.
Sale and leaseback
Property ownership has historically been seen as a normal part of operating a GP practice with, typically, all partners taking an ownership stake. A recurring theme now seems to be that younger partners joining partnership are often less inclined to sign up to a significant bank loan to fund a property and are more risk averse than previous generations. This is probably understandable as the new generation of partners has trained through a period of deep recession in which the property market took a significant dent – their concern is that if it has happened once it could happen again.
We are therefore seeing an increasing number of practices operating with only a subset of the partners actually being property owning partners and indeed retired partners staying on as landlords where incoming partners do not wish to take on their ownership stake.
We are also seeing sale and lease-back transactions becoming more common in this respect as passing the ownership to a third party takes away the issue (although it also takes away the potential opportunity). Another factor is that the primary care specialist property businesses appear to be increasingly flexible in the nature of the properties that they will invest in and indeed in the terms of their contracts.
There are a huge number of practices currently engaged in merger discussions with other local practices or considering joining a super-partnership.
In our view consolidation is, on the whole, positive for the sector and can bring significant benefits. Our plea is that practices involve their accountants at an early stage in the thought process. Often, practices are a significant way through merger discussions before talking to their accountant. This can mean that significant potential deal-breakers are not identified at the outset, and can cause problems further down the line. We recognise that practices wish to manage their spend on professional fees, but we would argue that lengthy discussions with an ultimately unsuccessful merger partner are also a significant drain on resources.
Making tax digital
The Government has recently revised its timetable for its Making Tax Digital for Business program. The latest plan is that from April 2019 businesses over the VAT threshold (with a small number of exemptions) will be required to maintain digital records. More importantly businesses will commence reporting digitally to HMRC in relation to their VAT information from that date where they are VAT registered – this will clearly impact all dispensing practices in just over a year’s time.
HMRC has flagged its intention to widen the requirement to report digitally to other taxes such as corporation tax, partnership tax and so on as soon as the VAT reporting has proved successful. Therefore this initiative will be coming to all practices in the near future (possibly from 2020).
In practice this means that HMRC will be receiving information about your business quarterly and in a much greater level of detail than ever before. The days of simply preparing one set of figures at the end of the financial year will soon be gone and practices will need to ensure that they are able to accurately report on a quarterly basis.
From a practical perspective we recommend that practices contact their software provider to ensure that their accounting software is Making Tax Digital compliant. We also recommend that in your recruitment strategy you consider the job specification of any new finance roles, possibly in conjunction with your accountants, as there is a risk that if you cannot manage MTD in-house then your external accounting fees may rise.
These are just some of the areas where we feel there is the potential for significant impact on practices, and we recommend these go to the top of any to do list!
If you would like to discuss any of the matters referred to above please contact Martin directly.
Martin Ramsey – is a specialist adviser in relation to primary care. Martin deals with all aspects of GP businesses including year end accounts, business taxation and personal tax compliance work. Martin also advises on other finance related matters such as property transactions, capitalisation, distressed practices partner structures, profit sharing and business strategy.